Office shortage in Auckland and Wellington

1:14 PM Friday October 27, 2017 True Commercial

IT, education and professional service industries are driving a shortage of large floorplates in Auckland. Photo / Supplied

Large-format office space in central Auckland — of the type often required by the IT, education and professional service industries — is now in short supply.

JLL’s Vertical Vacancy Review for the last quarter of 2017 says the popularity and growth of the Wynyard Quarter and the Viaduct Harbour Precinct has meant a reduction in skyline vacancy from 5.7 per cent to 4.6 per cent.

JLL’s associate director of research and consulting, Tom Barclay, says many more 1000sq m-plus tenants would like to relocate to Auckland’s CBD but cannot now find suitable offices there.

Barclay says Wynyard Quarter has been the focus of A-grade office development and will continue to hold this position for the foreseeable future given the amount of committed projects and developable land remaining.

“The occupier footprint for major 1000sq m-plus tenants has seen substantial change over the National Government’s tenure. Education sector office occupiers have almost doubled over the past 10 years.

“There’s also been growth in the Auckland footprint of IT, communications and professional services. This is in contrast to the likes of the legal, insurance and public sector occupiers who have retracted their footprint in the city - generally by being more efficient with the amount of space they are using per employee.

“IT and communications are dominant users of space in the area, making up 38 per cent of total occupiers across the surveyed buildings. Professional services also have a relatively high presence at 25 per cent of total stock.”

Barclay says some head offices are taking up residence in Wynyard Quarter with Auckland Transport, Datacom and soon the AA, all relocating there.

The area is close to the CBD and a walkable distance to the Britomart station and Ferry Terminus, plus it has great access to the Northern Motorway, he points out.

In contrast to Wynyard Quarter, Auckland CBD has seen core vacancy increase from 2.4 per cent to 5.8 per cent. This has come about as a result of some availability in lower A-grade buildings, while the four premium towers remain tight, Barclay says.

With secondary vacancy in the wider market increasing due to tenants moving up into higher quality new supply, landlords are taking the opportunity to upgrade older buildings and capture occupier demand for better quality stock and refurbished character space.

While refurbishments are a common feature, Barclay believes that the increasing conversionary activity is also due to tenant flight up the grade spectrum to higher quality space.

“With office tenant demand skewed towards the waterfront, the city fringe and non-core locations with University influence, will be considered for conversion to student accommodation, hotel or apartment uses to achieve superior long term returns.”

Due to the earthquake in November 2016, Wellington is in a similar situation to Auckland with low vacancy at the top end of the market.

JLL’s senior research consultant Chris McCashin says vacancy in prime buildings is almost non-existent, with virtually no supply over 500sq m available.

However, new supply is just around the corner and will relieve some pent up demand with 17,000sq m at 20 Customhouse Quay to come online and another 10,000sq m in a new PwC building.

“There is also a number of substantial properties on the market for sale, which will test the depth of the buyer pool and investor resilience,” says McCashin.

Unlike Wellington and Auckland, the Christchurch market has an ample supply with the prime skyline vacancy sitting at 12.1 per cent, although this is a considerable decrease for the city which formerly saw vacancy as high as 17.6 per cent across the skyline.

Large floorplates are not an issue in Christchurch where demand is now generally skewed towards smaller tenancies of 500sqm or less. The current occupier split is dominated by financial services (31 per cent), public sector (26 per cent) and professional services (17 per cent).