City fringe to host most new office development in next supply cycle

2:31 PM Friday August 8, 2014 Colin Taylor

JLL Research White Paper analyses future of the Auckland precincts

Ambitious property owners and developers, seeing increased occupier demand as the Auckland office market recover in line with the economic cycle, are looking to meet a growth in demand for office space with new supply both in the CBD as well as the city fringe, says JLL in a research White Paper.

“The question for market participants, landlords and tenants alike is will this current proposed supply pipeline meet the level of demand manifest within the CBD?” the White Paper asks. “Or will demand be dwarfed by an A Grade and Premium supply response?”

JLL says the agency’s research analysis shows that the answer to those questions “likely lies somewhere in between but the outcomes are not without risk.”

“As economic conditions continue to improve, demand for high quality space in the best locations in the CBD continues to remain strong. Options are dwindling however.  

“The Western Waterfront and Viaduct Harbour/Wynyard Quarter precincts are likely to be the main development hubs due to the low risk profiles associated with the areas i.e. high and sustained levels of occupier demand. There are also numerous other potential commercial development sites located in Uptown, Shortland St and the Eastern Waterfront. However these sites are for the most part impacted by uncertainty such as potential changes in land ownership, issues in relation to resource consents or risks inherent in their micro location.”

JLL says that, after analysing feasibility i.e. the level of rent required to assure financial viability, city fringe developments - as confirmed by the cranes now being seen on the Auckland skyline - have already been triggered by current rental levels. As a result the city fringe will likely house the majority of new and proposed development over the next office supply cycle.

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The Future of the Precincts

 JLL says Auckland’s CBD office precincts have “evolved somewhat organically” over the past 30 years. “As the market continues to develop over the next office supply cycle we see the continued segregation of the CBD as per the map below.” 

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 Up Town

The upper end of the CBD has long been developing into a leisure focused precinct with the Metro Centre, entertainment venues, The Civic Theatre, Auckland Library, Auckland Town Hall and temporary winter ice rink on Aotea Square creating a hub of leisure activities within central Auckland. The area still achieves high levels of footfall, primarily from students travelling the short distance down from the university area as well as those targeting leisure activities. This keeps retail performing relatively well and will continue to do so, especially food retailers in the lower price range which complement the leisure offerings.

JLL Research says office space in this area of town, has however, progressively suffered through increasing vacancy and falling rents as the  commercial occupier focus of the CBD moves towards the transport hub of Britomart.

“It’s not all bad news for offices in this location with the proposed City Rail Link (CRL) which targets the development of three new stations (Newton, K’Road and Aotea) linking Britomart rail terminus to the current Western Rail Line. We believe that the planned station at Aotea Square, which we  anticipate will be the first to be completed in 2020/21, will have a significant positive impact on office demand in the area.

“While we feel that the overall focus on leisure will continue and the majority of additional development demand in the area will be for residential, we believe office occupier demand for the area will increase due to the additional connectivity and will ultimately mean that increased rents will trigger office development. Whether this will happen in the current office cycle is another question. The precinct does have the potential to attract large commercial occupiers assuming the product developed there is the correct mix. Having said this, on a whole the precinct on its own merits is unlikely to compete with the waterfront or other prime core CBD office precincts over the medium term.

Shortland Street

Shortland Street is considered to be one of the main office sub markets in Auckland and is densely populated with office space. Located close to the amenity of both High Street and Queen Street and adjacent to the High Court, there has been a historic tendency towards legal occupiers in the area. The precinct was intensely developed during the 1980s and 1990s with a number of current Prime high-rise office towers located in “The Street”.

JLL’s White Paper says office stock is at its most dense in this section of the CBD with approximately 175,000 sq m of office space in around 10 ha of land and approximately 57 per cent of the Prime space reflecting the relatively young age of overall building stock. The most recent activity in the precinct was the construction of Deloitte Tower in 2009 contributing 21,000 sq m to the stock.

“We view the future of this consolidated office precinct to be sound as demand remains high for the location, especially as  further development is carried out in and around the precinct reinforcing its somewhat exclusive position ‘up the hill’. Potential future development in Custom Street East and Britomart has the potential to better link Shortland Street to the waterfront.”

 Eastern Waterfront

The Eastern Waterfront is dominated by mixed uses and education with the area being close to the University of Auckland. The sub market has a high level of development of student accommodation and the ancillary retail offering that typically goes with student accommodation. In addition, Vector Arena also influences the uses in the immediate area with a number of hotels, serviced apartments and restaurants that operate in a large part off the back of revenue derived from patrons of events held at Vector Arena.

While the precinct houses several commercial office buildings of high quality (AECOM Building) with good tenants (AECOM and BNZ for example), the isolated location can be considered a negative and the precinct is in many ways becoming a fringe location - currently in between areas - as the CBD’s centre of gravity shifts further westward.

“As a result, with regards to offices, we believe there is limited potential for further development until vacancy in CBD and fringe areas - currently 15.4 per cent excluding the Viaduct - has been absorbed,” says JLL Research.

Western Waterfront

With the development of the PwC Tower and Britomart, the Western Waterfront is flourishing off the back of excellent connectivity to the two major transport hubs in Auckland, Britomart rail terminus and the Ferry Terminal. The area is a hub for both Premium and Grade A office buildings with key investors in office property demonstrating their commitment by proposing considerable future development in the precinct. There is approximately 306,000 sq m of office space, some 72 per cent of which is Prime space reflecting the high quality of the stock base there.

The JLL White Paper says the waterfront location creates some restrictions around height in some locations which will ultimately limit the density of offices in the precinct in comparison to areas such as Shortland Street. “Office space would need to increase by 75 per cent in order to reach the same level of density as Shortland Street.”

Recent market activity in the area includes the construction of the E&Y and Westpac buildings in Britomart in 2011 as well asthe refurbishment of Zurich House completed in 2007. In addition, there have been a number of purchases including in 2013, 1 Queen Street for $103 million and Downtown shopping centre for $90 million in 2012 - both strategic purchases by Precinct Properties.

JLL says the Western Waterfront is ultimately championed by its location - sandwiched between Shortland St and the Viaduct. It benefits from the security of Shortland St and the link to the waterfront as well as the shift of activity towards the Viaduct.

As a result, JLL believes that the outlook for the area is extremely positive, especially with a number of developments due to begin over the next few years and continued transport as well as public realm infrastructure projects in the pipeline such as “the pedestrianisation of Quay Street”.


Developments in the Viaduct were originally triggered by the hosting of the America’s Cup in 2000 and the precinct retains much of its historic maritime and light industrial uses. However, filtering in from the CBD side of the precinct, the area has been consolidated with restaurants and bars proliferating as well as high performing residential development - although some suffer from theleasehold structure in place. Hotels have also succeeded due to the closeness to the waterfront and links with the cruise ship industry. Although there is a trend towards a regeneration of the industrial areas, there may be limitations, especially around areas such as the oil tank farm on Wynyard Wharf.

Office development has gained momentum in the Viaduct as some 175,000 sq m of high quality office space worth about $670 million has come online since initiation in 2000, amounting to a rate of approximately 12,500 sq m per annum. These range from a number of strata titled properties successfully sold down at the outset of development in the precinct through to the completion of several large footprint national HQ buildings.

Current large occupiers in the precinct include Vodafone, Air New Zealand, The ASB as well as Fonterra which has a new HQ building currently under construction as part of a wider office development by Goodman.

As a result of this continued commitment from office occupiers, as well as intentions to build further residential product and corresponding retail, JLL believe the outlook for the Wynyard/Viaduct precinct is promising.

“We believe the CBD will continue to shift towards this area as demand grows and rents rise however this development could lead to an oversupply of office space.”