Light at end of city rail tunnel: Bayleys

Major infrastructure works have been disrupting Auckland’s midtown and Upper Queen Street precincts for an extended period - and the lingering preference to ‘work from home’ post pandemic is still impacting occupancy in parts of Auckland’s office market.

Yet the Auckland CBD has shown commendable economic growth over the same period, and as key office redevelopment projects advance in the midtown precinct, there is light at the end of the tunnel for office owners and occupiers says Bayleys Commercial.

The latest data from Infometrics reveals that Auckland’s CBD outperformed the rest of New Zealand in both GDP and employment growth for the second year in a row, cementing its position as the country’s economic epicentre.

The CBD’s economic growth rose to 9.2%, reaching a valuation of $30.4 billion up to March 2023. This surge was accompanied by a 7.3% annual increase in employment, contrasting with the national average of 2.5%.

Steve Rendall, Bayleys’ National Head of Occupier Strategy and Solutions, said a number of exciting urban renewal projects that align with completion of the City Rail Link (CRL) infrastructural project are progressing.

And while there will be ongoing interruption to traffic movements, pedestrian activity, and retail functions for at least two more years, the end is in sight.

“Access to parts of midtown and around Upper Queen Street during the undertaking of the CRL works has been testing, with Upper Albert Street particularly affected, and access to surrounding amenity, retail and office premises has been problematic.

“But these are complex and vast works. As with any ambitious initiative to improve the infrastructure within an existing CBD, the gains associated with the work comes with some initial pain and it’s been a challenging time for the city.

“However, we can now see the light at the end of the tunnel (so to speak) and from a commercial real estate perspective, we anticipate there will be appreciable upside and opportunity for owners and occupiers in the midtown and uptown commercial precincts, as the CRL and associated stations are completed.

“We’re strongly encouraging occupiers to investigate their options now, as these regenerated urban neighbourhoods start to flourish.”

Rendall said the university, midtown and uptown precincts have generally (although not universally) underperformed in terms of property values, occupancy levels and achieved rental rates since the pandemic and in the wake of ongoing infrastructural works.

“This has been driven by a number of factors including a downturn in international student numbers, a general reluctance of office workers to return to the office, and hesitance by employers to require staff attendance.

“There’s also been significant disruption to public transport, vehicular traffic and pedestrian flows – particularly around Victoria Street, Albert Street, Wellesley Street and Mayoral Drive with routes closed and access restricted as the CRL tunnel and the new inner-city stations are built.

“Additionally, there have been associated safety concerns and a general lack of amenity due to many retail outlets and hospitality businesses closing out of sheer frustration and/or lack of turnover.”

Auckland Business Chamber chief executive officer, Simon Bridges recently conceded that once the CRL eventually opens, “the vast majority of people will forget all the criticism, and Auckland will be in for a pretty golden period”.

Rendall concurs and said although latest estimates put the CRL project at around 80 percent complete, pointing to a late-2025/2026 handover to Auckland Transport (AT)*, he’s witnessing a surge in property enquiry and activity in parts of the CBD that have languished in recent years.

This renewed interest has been helped by some exciting new investment in these areas.

“Public and private investment will help deliver a resilient and future-driven mid-to-upper city with tangible advantages for office users, residents, visitors, and the economy as a whole.

“Examples include Malaysian Resources Corporation Berhad’s (MRCB) refurbishment of Bledisloe House and planned new development at the Symphony Centre, Auckland Real Estate Trust’s (ARE) launch of the Formery East and Formery West, and the ongoing evolution of the SkyCity precinct as the new International Convention Centre (ICC) moves closer to completion.”

The CRL will provide a 3.4km track spanning four underground stations from downtown’s Waitematā Station (Britomart) to Maungawhau Station, Mt Eden. In midtown, Te Waihorotiu (Aotea) Railway Station will have entrances on Victoria and Wellesley Streets West and Karanga-a-Hape Railway Station will with two entrances: one at Mercury Lane, the other in Beresford Square.

Work is underway on The Symphony Centre, a 21-storey over-station development with integrated access to Te Waihorotiu station in Wellesley Street incorporating retail, commercial offices and high-density residential development.

Existing Bledisloe House is also being refurbished and upcycled with cosmopolitan laneway connectivity.

Council-aligned entity Eke Panuku Development Auckland is partnering with international property developer MRCB on these projects. a

“Te Waihorotiu Railway Station is expected to be New Zealand’s busiest station, with capacity to carry up to 54,000 people per hour,” said Rendall.

“Transport convenience is a key factor for businesses making occupancy decisions so clearly office property within the vicinity of any of these new stations will get a boost in demand and uptake of work space.

“Leading by example, Auckland Council is already consolidating many of its office functions into its head office at 135 Albert Street, diagonally opposite Te Waihorotiu Railway Station.

“New amenity in the general area and the sense of vibrancy being created will further drive uptake of vacant leasing opportunities.”

Rendall expects many office users will take advantage of comparatively cheaper space in the midtown precinct and, with vacancy rates very low and rental rates increasing in the popular downtown and Wynyard precincts, there could be some interesting cross-town movement happening.

“I think we will see a rebirth of midtown, supported by new investment and underscored by increasing numbers of office workers returning to the physical office – either driven by staff preference or employer mandates/directives.

“We would expect to see rental escalation in midtown and uptown over time as the stations become operational and the offices start to fill up.”

Noting that the SkyCity precinct continues to grow with the new ICC on track for completion late this year, and new food and beverage outlets opening, Rendall said some innovative players in the office market are also picking up the pace.

“Leading entity ARE, formerly Quattro, has built on the success of its curated hybrid work space Alberts, at 1 Albert Street, and brought two new offerings to the leasing market.

“ARE has launched The Formery across two locations – Formery West at 87 Albert Street and Formery East at 16 Kingston and 60 Federal Streets – with these hybrid working options championing the midtown neighbourhood.

“This is a fledgling sign of what is to come as others jump aboard the midtown and uptown property train.”

- Supplied by Bayleys

*Auckland Transport has not committed to a date when the City Rail Link will open to the public.