High demand for premium office buildings in major centres

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Photo: Unsplash / Kate Sade

A flight-to-quality in the commercial property market is driving demand for prime office space.

Real estate firm JLL’s latest report shows Auckland, Wellington and Christchurch are close to putting up the no vacancy sign for premium office buildings.

Auckland’s big five towers have reached historic three-year vacancy lows of 2.1 percent, down from 3 percent in the first quarter of the year.

These are the HSBC Tower, ANZ Centre, Vero Centre, PwC Tower and Deloitte Centre in Auckland’s CBD.

Prime vacancy rates are 5.3 percent in Wellington, while in Christchurch 15 of the 17 premium buildings are fully leased.

Vacancy levels across premium office space in Auckland’s CBD edged up slightly compared to the last quarter, now sitting at 8.9 percent up from 8.1 percent.

“That represents a small increase of 2500 square metres of additional space coming onto the market, mostly due to the completion of new and renovated office space,” JLL’s head of research Gavin Read said.

High demand is reflecting rising rents with JLL forecasting an increase of more than 12 percent over the next five years for Auckland’s premium office spaces.

“In Auckland, average net prime office space rents now command $566 per sqm, up 1.6 percent compared to the last quarter, having now risen for the last five quarters in a row,” Read said.

“Looking ahead, around 100,000sqm of premium office space in Auckland in the pipeline is to be completed by 2026, yet average net prime rents are also forecast to increase,” he said.

Read said the trends in New Zealand differ from the current overseas situation.

“I’m not surprised to see that the top buildings are doing the best around the vacancies and the demand for them,” Read said.

“But when you look at the offshore market, some of the prime buildings aren’t doing as well as what we’re seeing here in New Zealand, particularly in Auckland, Wellington and Christchurch,” he said.

The sustained high vacancy levels for prime commercial buildings in Auckland, Wellington and Christchurch are outpacing those in parts of these cities where rents are lower.

Read said it was clear that employers want to provide the best offices in sought-after locations for their workers.

“It’s a mixture of some public services, there are some large corporates and also some multinationals,” he said.

“There are also private companies where they may not have the full floor but they may have some smaller space for their staff.”