Prime office rents in Auckland’s CBD are expected to rise by up to 5% a year until more supply becomes available in 2020, according to new forecasts
The latest Colliers Essentials reports offer snapshots of the CBD office markets in Auckland and Wellington.
The research shows prime office vacancy in Auckland CBD has decreased for the first time in almost three years, to 3.5%.
Secondary vacancy has increased to 8.1%, but is still well below the long-term average.
Chris Dibble, Director of Research and Communications at Colliers International, says the squeeze on space will contribute to ongoing rent increases.
“Prime net rents in Auckland’s CBD are forecast to increase from an average of $478 per square metre in June 2018 to $561 in June 2023 – an increase of 17.4% over the next five years.
“Secondary net rents are forecast to increase more slowly, by 7.5% over the next five years, from an average of $265 to $285 per square metre.
“This represents an overall average net rental growth of between 3 to 5% a year in the coming few years – at least until more supply comes online in 2020.”
Some 95,981sq m of new office space is forecast to be developed over the next five years, representing 6.6% of the current total floor space.
However, Dibble warns this is unlikely to satisfy occupier demand over the long-term.
In Wellington, CBD office rents are also forecast to increase despite new stock on the horizon.
“New gross rental benchmarks are being achieved with limited tenant incentives due to a strong occupier demand environment,” Dibble says.
“Average prime gross rents are forecast to increase by 12.9% over the next five years, from $498 to $562 per square metre.
“The average secondary gross rent is also likely to climb by about 7.8%, from $260 to $280 per square metre.”
Office space in Wellington’s CBD remains tight, even with the completion of two new prime office buildings, adding another 25,180sq m, and two major office refurbishments, adding 16,430sq m.
More office space is coming, with Precinct Properties announcing two more buildings at the Bowen Campus, to be completed in late 2021, which will add some 22,000sq m to Wellington’s prime office stock.
Dibble says yields continue to firm and sale activity remains buoyant in both main centres, due to a low interest rate environment, boosted by offshore activity.
In Auckland, major transactions have included Precinct Properties’ sale of 50 per cent of the ANZ Centre for $181 million to Invesco, and Goodman’s sale of the VXV office portfolio at Wynyard Quarter for $635m to Blackstone, for a yield of 6.6%.
Both sales are subject to Overseas Investment Office approval.
In Wellington, offshore investor Credit Suisse purchased the HSBC Tower at 195 Lambton Quay for $102.5m.
This was the second office asset over $100m to sell to an offshore purchaser in 2018.
Yields in Wellington’s CBD office market have firmed a further 25 basis points compared with a year ago.
However, seismic issues remain a focus for any occupier and investor in Wellington.