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Auckland

Auckland is New Zealand’s largest city and region with a population of 1.64 million and is home to approximately one third of the country’s population. As of the 2018 census, 41.6% of Auckland’s population were born overseas, predominantly in Asia, the Pacific Islands, and the United Kingdom. Immigration to New Zealand is concentrated in Auckland due to better economic opportunities, established ethnic enclaves, and accessibility to international travel and is expected to characterise two-thirds of Auckland’s future growth, which is predicted to reach two million by 2033.

Auckland is the economic and financial centre of New Zealand and accounts for 38.1% of the country’s GDP, while being considered a Beta+ world city because of its contribution to commerce, education, and the arts. The professional, scientific, and technical services industry employs 12.1% of the city’s working residents and accounts for 10% of Auckland’s GDP, followed by manufacturing at 9.4% and financial and insurance services at 9.0%. Additionally, the Ports of Auckland, New Zealand’s second largest after Tauranga, is estimated to generate $15 billion of the country’s GDP and provides around 180,000 jobs both directly and indirectly.

The city’s presence as an innovation hub in the Asia-Pacific region has seen the proliferation of over 30,000 sqm of coworking space in Auckland in the last four years, including GridAKL in Wynyard Quarter. It is expected that by 2020, the wider innovation precincts will contribute $450 million annually to Auckland’s economy.

Premium office space in Auckland’s CBD is primarily located around lower Queen St and the waterfront, and is typically occupied by professional and financial service providers. Meanwhile, the largest industrial areas are situated in Onehunga, East Tamaki, and Manukau, but with recent industrial development on the urban fringe, growing business parks have emerged in Westgate and Drury South. Auckland’s commercial property sector observes substantial demand and the city’s economy is supported by significant interest in construction and real estate investment.

Office leasing trends in Auckland

Among Auckland office, the occupier preference for prime space over secondary is exemplified by an almost 10% difference in vacancy levels. However, this relationship is further complicated by a growing amount of sublease space and difficulty with finding eligible tenants. Flexible workplace strategies continue to redefine the role of the office post-COVID, and with OPEX facing upwards pressure due to labour costs, space needs are being addressed on an individual business level.

With the completion of Precinct’s 10 Madden in early 2021 as well as the continued construction of 136 Fanshawe (due to complete in 3Q21), there is limited new-build supply within the Auckland office market in the short term. Most notable projects in the pipeline are refurbishments such as at 131 Queen Street and Alberts (formerly West Plaza), as well as the newly added 'Fusion' repositioning project due to commence mid-2021. There has, however, been some significant status changes impacting medium-term supply. During early 2021, Precinct took One Queen off hold and revised their plans by reducing the hotel component and reallocating the space to create five additional floors of office. In addition, the 1 Mills Lane development (Mansons) was also taken off hold and will commence construction in 2021, suggesting revived developer interest post-COVID.

A lack of leasing evidence sees prime and B-grade office rents hold flat over recent quarters, meanwhile a ‘flight to quality’ scenario has created large vacancies among lower grade stock and a continued softening of rents. Anecdotally, landlords are either looking for alternative uses for secondary space or leaving the stock empty, and when compared to forecasts for prime office space, they maintain larger incentives and recover significantly slower. Similarly, yields have held relatively firm over the year having compressed during the initial lockdown period. Given interest rates remain low and bond yields have increased, we anticipate current levels to represent the lowest point in the cycle, barring that another trophy asset does not come to market.

 

Parameter 2H19 2H20 Y-o-Y Change Outlook
Prime CBD 
Office Stock (sqm) 576,806 598,339 ↑  3.73% ↑  
Vacancy  3.74% 3.98% ↑ 24 bps ↑  
Net Face Rents (NZD per sqm p.a.) $502 $516 ↑  2.79% ↔
Yields  5.00% 4.69% ↓ -31 bps ↔
Total CBD 
Office Stock (sqm) 1,220,427 1,230,128 ↑  0.79% ↑
Vacancy  5.21% 9.04% ↑ 383 bps ↑  

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