JLL researchers made 2 suggestions this week for tenants of office buildings in the Auckland cbd, and landlords of secondary space.
For occupiers & tenants, research analyst Daniel Longmire & senior consultant Chris McCashin said in JLL’s third quarter Pulse report: “Look to the influx of new-build options incoming in the second half of 2019 & first half of 2020. These will provide opportunities to move up the grade scale or secure better lease terms in existing space.”
For landlords, they said: “Landlords of secondary space should consider refurbishment. Demand remains skewed toward the top end of the market, and an increase in available options in the next 12-24 months will make secondary space less tenantable over the medium term.”
Their research showed vacancy dived from 8% to just below 5% in 2015, rose to 7% over the next 2 years and declined to 6.1% in the year to June 2018. They anticipate a rise of about half a percent over the next 12 months.
“A decline in vacancy was primarily driven by uptake in space within the Viaduct Harbour precinct, which fell by 167 basis points to 6.4% over the first half of 2018. Some 2500m² on the top floor of Datacom House was removed from the pool of available space, pushing office occupancy in the recently completed building to 100%.
“A number of factors have continued to aid overall demand for cbd office space, including sustained expansion of the white collar workforce, which increased by 7.3% from 506,900 in March 2017 to 544,100 in March 2018.”
The researchers attributed a slight rise in prime vacancy, to 5.3%, to some tenant retrenchment & reshuffling: “Limited options within the top end of the market continue to filter occupiers further down the grade spectrum, often refurbishing secondary stock to meet their office accommodation requirements.” That helped reduce secondary vacancy by 84 points to 6.7%.
The development pipeline
Mr Longmire & Mr McCashin said 2 new buildings in the Viaduct Harbour precinct, AA Insurance House & Vocus House, added 16,890m² of A grade space, and total cbd office space increased to 1.243 million m².
3 large developments will add 63,690m² over the next 2 years:
- Commercial Bay, by Precinct Properties NZ Ltd on the block surrounded by Albert, Customs West, Quay & Queen Sts, 39,000m² in the second half of 2019
- One55 Fanshawe, by Mansons TCLM Ltd on the Victoria Park end of the Wynyard Quarter, 16,830m²
- 10 Madden St, by Precinct in the Innovation Precinct, 7860m² in the second half of 2020
The researchers said rental growth had stagnated this year, leaving the average for prime space at $490/m², though the limited options available were at higher rents. The secondary average was $290/m².
The JLL team expects the prime average to rise to $501/m², secondary to $296/m², by the first quarter of 2019.
The average prime yield was 5.6%, while the secondary firmed from 7% in the first quarter to 6.6%.
Attribution: JLL Pulse.