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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

The completion of the 39,000 sqm Commercial Bay development in 1H20 gave rise to an increase in prime office stock and average rents, but this was noticeably countered by increases in average incentive levels and slight yield expansion. In addition, most projects in the development pipeline are experiencing delays due to the effects of COVID-19 and its associated lockdowns, and while they will contribute to city’s office supply, many are pre-committed. As the economic impact of the global pandemic begins to realise in the Auckland setting, we anticipate occupier demand for prime space to be sustained, whereas lower grade accommodation will be deprived. Thus, we expect to see a widening gap between prime and secondary office space, especially with a growing volume of sub-lease space being offered as some occupiers turn to remote working strategies.

Prime net face rents have steadily increased over 2Q20 to $518 per sqm while secondary rents decreased to $270 per sqm, with both grade types experiencing increased incentive levels. There does remain a clear, growing market split in terms of marketability between Premium, A, and B-grade stock and those assets graded C and D. Despite this, we predict little movement in rents through to 2021 as occupier demand and workplace strategy evolve in the wake of COVID-19. Additionally, yields have pushed out slightly as investors take a wait-and-see stance regarding decision-making. Both prime and secondary CBD office yields increased by 19 bps in the last quarter to an average of 4.94% and 5.81% respectively in 2Q20.

 

Parameter 1H19 1H20 Y-o-Y Change Outlook
Prime CBD 
Office Stock (sqm) 576,806 615,806 ↑  6.76% ↑  
Vacancy  4.66% 4.84% ↑ 17 bps ↑  
Net Face Rents (NZD per sqm p.a.) $496 $518 ↑  4.38% ↓
Yields  5.25% 4.94% ↓ 31 bps ↔
Total CBD 
Office Stock (sqm) 1,223,868 1,253,808 ↑  2.45% ↓
Vacancy  5.18% 8.06% ↑ 288 bps ↑  

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