Recent research by Colliers highlights increasing risk that Auckland CBD office tenants will have fewer options to choose from in the future as vacancy levels sit at the lowest level seen (since records began in the mid-1990s).
While there is clear evidence there are fewer options in the market at present, Dean Croucher, Managing Director of independent advisory TwentyTwo poses an alternative view.
His advice to Auckland tenants is, “don’t believe all the propaganda! The market is not bereft of options despite what some parts of the industry would want you to believe. Research and data is one thing but if you buy into some of the rhetoric you would quickly get the impression that tenants are clamouring for office space, almost queuing at the door. The next thing we’ll hear is tenants paying key money for the privilege! Those of us old enough will perhaps remember these days when key money was often paid to secure prime retail sites”.
Croucher downplays the hype. “Despite the so called shortage of space we still get regularly sent vacancy details by the large landlords. Precincts’ July communique indicates they alone have at least 20,000m2 of space across several buildings becoming available between now and Q4 2020. Yes, the list is smaller than a few years ago and the quantum of space is generally in smaller blocks but there is still space”.
TwentyTwo undertakes its own market research and is actively involved in a range of projects, usually under the radar. “We are definitely seeing ongoing demand for office space which doesn’t seem to be slowing. This is a combination of organic growth across a range of sectors and the ongoing “trading up” as modern organisations seek improved resilience, amenity and workspace to support their growth and aspirations”.
Croucher also points to a recent report from Auckland Tourism, Events and Economic Development (ATEED) indicating the growth in professional and technical roles will continue with a total of 200,000 new jobs across a range of sectors forecast over the next 10 years. “This report is very revealing. It shows that Auckland is forecast to continue to grow and the CBD and fringe CBD office precincts will need to absorb a large part of this growth. 31,000 of these jobs are forecast in the professional services sector alone. While not all of this space will be needed in the CBD, to put it in context, if you allow a nominal 10m2/per person this equates to 310,000m2 of office space needed over the next 10 years, or a further eight Commercial Bays!”
Croucher believes that despite the current tightening of options there are always options for tenants as long as they plan well ahead and control the engagement process with the market. “They say “build it and they will come”. We equally say “need it and they will build it”. Large occupiers have the ability to influence the market and new solutions will continue to be developed in response. We are still seeing attractive commercial terms including incentives being offered by some developers in exchange for quality tenants, long leases and prefixed rental increases. In a low interest rate economy well leased commercial property is in continued demand so developers remain motivated to create new stock to attract tenants and to in turn hold or sell the completed product into the investment markets (local and offshore)."
Image credit: Warren and Mahoney