• New office accommodation in scarce supply… the only office building currently under construction in Albany is 55 Corinthian Drive.

Office supply squeeze pushes rentals up

COMMERCIAL PROPERTY: With Bayleys Commercial North Shore

North Shore office accommodation remains in very tight supply with little better quality space available for lease. Rentals are increasing as a consequence.

The latest accommodation survey of office precincts in Takapuna, Akoranga/Northcote, Wairau Valley, Albany, Rosedale, Mairangi Bay and Browns Bay undertaken by Bayleys Research shows the North Shore’s overall office vacancy sits at 5.4%, little changed from 2018.
Bayleys North Shore Commercial General Manager Daniel Henderson says this figure is below the Shore’s historical average vacancy rate and is indicative of a shortage of office accommodation, particularly for good quality premises.
“Conditions within the Takapuna market have tightened considerably with pockets of long standing vacancies being leased and little space above 700sqm now available,” he says. “Better quality leasing opportunities in the Albany Basin are also few and far between. The only new office development currently underway there is 55 Corinthian Drive (6,500sqm) due for completion mid-2020 and largely pre-leased.”
Mr Henderson says with office vacancy in Auckland’s CBD at an historically low level, occupier demand for commercial accommodation is increasingly spilling over into CBD fringe and other locations, including the Shore. Larger groups in the IT and utility sectors are at the forefront of this push into amenity rich urban areas outside of the CBD.
The most high profile example on the Shore has been Vodafone’s relocation of its New Zealand head office from Fanshawe St in central Auckland to Smales Farm in Takapuna following its merger with Telstra.
 “This trend is expected to continue as issues with traffic congestion into and out of the CBD get worse,” says Henderson.  “Competition to attract and retain key talent also means organisations are looking more closely at locational attributes and high spec working environments as draw-cards.
“Unfortunately, this demand for top quality office accommodation outside of the CBD is not being adequately matched by an appropriate level of supply on the Shore which is putting upward pressure on rents. This is likely to remain the case until supply catches up with demand.”
Rentals have been trending upwards across most parts of the North Shore with the best quality office space in Takapuna and Albany now being generally leased at between $275 and $375 per sqm and from $210-$275 per sqm for secondary space. Operating expenses (including utility services, insurance and rates), which tenants pay in most leases, are higher in Takapuna at $60-$95 per sqm than in Albany where they range from $50-$75 per sqm.
The cost of car parking in office buildings is also on the rise. Parking in Takapuna ranges between $35-$60 per space per week while in Albany most rates sit at $15-35 per week.
Bayleys North Shore Commercial’s office team leader Dean Gilbert-Smith says the shortage of office accommodation on the North Shore is the result of an increase in leasing activity amongst both existing tenants and new players. These include Comworth Group, Penguin Random and Fuel 50 in Takapuna plus Plan B and Auckland Transport in Albany.
No new office development is currently underway in Takapuna although a number of opportunities exist, says Mr Gilbert-Smith. These include the redevelopment of the former Takapuna Council building at 1 The Strand, Takapuna. Although the council’s lease runs for another couple of years, it has almost fully vacated the premises and sub-leased part of the space to a number of large office tenants.
Mr Gilbert-Smith says the property’s Hong Kong based owner has recently announced plans for a comprehensive refurbishment and modernisation of the four-level building. This will include a fully remodelled lobby, complete services upgrade, new courtyard and onsite cafe, as well as end of trip facilities.
 “In light of the current shortage of quality office space in Takapuna, coupled with the property’s central location and proximity to the beach, it is likely to attract a wide range of tenant interest. Its large 3400 sqm floors mean it should have particular appeal to larger tenants wanting to accommodate all staff on one level or a small number of contiguous floors.”
A major proposed redevelopment of the Anzac St car parking site could also incorporate office accommodation. As part of an Unlock Takapuna initiative, Auckland Council urban regeneration agency Panuku Development Auckland is overseeing a redevelopment of the under-utilised site.
Mr Gilbert-Smith says the development, being built around a large $7million public town square, will be a quality mixed use project with both residential and commercial buildings although
it is unlikely to have much impact on the office supply shortage.
He says there is also a real lack of good quality office space available for lease in Albany and a need for additional higher quality premises there as well. “There have been a number of large-scale office developments proposed for Albany over the years which have been overly ambitious and therefore did not get off the ground.
“However, there is a definite need for more new, medium-scale development right at the moment along the lines of the very successful development which is nearing completion at 55 Corinthian Drive and the neighbouring Mitre 10 head office and Olympus buildings.”  
Mr Henderson says North Shore office investment property remains in steady demand and there is particularly strong interest in vacant or semi vacant buildings from owner occupiers which is indicative of continuing buoyant business activity on the Shore.
 “Historically low interest rates are fuelling owner occupier acquisition activity because it means businesses can borrow to buy at a similar or lesser cost to renting. The big drop in the Official Cash Rate by 0.75 basis points this year, with the possibility of further decreases, is also resulting in more investors moving out of cash and back into property in search of income yield.”
Mr Henderson says a lack of buying opportunities at the prime end of the market has resulted in investors looking more closely at B grade properties with potential for higher and better uses. Syndication operators and local private investors currently dominate investment activity although a growing amount of off-shore capital, unable to secure CBD assets, is now seriously looking at other locations including the Shore, he says.

Active leasing market

Bayleys North Shore Commercial negotiated close to 50 office leases in the first 10 months of this year. Substantial transactions included:

Level 2, 5 Auburn Street, Takapuna: 560sqm on middle level of three-level office building leased to IT services company at a net annual rental income of $143,600 including two car parks @ $35 per week. (Jane McKee & Dean Gilbert-Smith)

Level 4, 15 Huron Street, Takapuna: 438sqm in modern office complex leased to insurance company for $124,280 net pa including four car parks @ $45 per week. (Dean Gilbert-Smith & Jane McKee)

Level 2, 2 Fred Thomas Drive, Takapuna: 371.24sqm of contemporary office accommodation leased to IT services at net annual rental income of $115,018 including eight car parks @ $40per week. (Dean Gilbert-Smith & Daniel Henderson)

Part ground floor McVeagh Fleming Building, 5-7 Corinthian Drive, Albany: 378 sqm plus five car parks leased to technology company at net annual rental income of $112,500. (Steven Liu, Jane McKee, Adam Curtis, Dean Gilbert-Smith & Adam Watton)

6 Tawa Drive, Albany: 557sqm two storey office/showroom building plus10 exclusive car parks leased for $95,000pa net.
(Matt Mimmack & Dean Gilbert-Smith)


Issue 105 December 2019