Office market sentiment around New Zealand

With corporate business owners in New Zealand actively encouraging employees back to the office, vacancy figures in preferred locations around the country are tightening.

A-grade and prime office stock have fared best, with demand outstripping supply in Auckland, Hamilton, Tauranga, Wellington, and Christchurch according to Bayleys’ insights and data team.

“The flight to quality is very evident as occupiers seek higher amenity and modern buildings for staff attraction/retention and, in the case of Wellington, to address seismic risks,” said Bayleys senior analyst, Ankur Dakwale.

“While flexi/hybrid working models will endure as we cycle out of pandemic forces, quality remains the market definer and tenant mandates for sustainable buildings are heightening this with stakeholders prioritising environmental, social and governance (ESG) policies.”

This drive to quality has resulted in a two-step market, where B- and C-grade properties are requiring savvy marketing programmes and higher incentives to mitigate weaker demand.

“Owners of secondary quality offices are repositioning buildings in the market by revamping arrival lobbies and end-of-trip facilities, often working towards NABERSNZ accredited ratings, and in less popular areas, reconfiguring space to accommodate smaller tenancies” said Dakwale.

In its (Y)our Space 2022 insights report, Bayleys’ global real estate partner Knight Frank said while corporate real estate sentiment is generally still positive around growth fundamentals, hybrid working experiences have blurred the relationship between headcounts and required office space.

Bayleys executive director Auckland commercial and industrial Lloyd Budd said there’s clear evidence that major corporates are now more comfortable about real estate footprint decision-making in the post-pandemic environment.

“While the global work-from-home experiment showed that business could continue remotely, it’s what was lost rather than what was gained that’s important,” he said.

“Business owners want to re-establish a culture of connection for high-performing teams, and are demanding flagship workspace that strategically positions them to attract and retain the best personnel.”

Budd said seasoned developers are delivering world-class office accommodation across the four crucial office pillars of quality, amenity, sustainability and flexibility.

“The supply side of the industry has responded with bespoke space that is driving pre-commitments and giving the market confidence.

“In signing up for premium space in favoured precincts, firms like Beca, BNZ, and Deloitte have recently signalled that the office is core to business growth, productivity and staff retention/attraction.”

Surveys by Bayleys’ insights and data team to November 2022 show vacancy in the Auckland precincts of Wynyard Quarter at just 1.5 percent, Britomart 3.1 percent and the Viaduct, 4.9 percent.

Overall Auckland CBD office vacancy averages 10.9 percent, pulled up by high vacancy in traditional education-led precincts like Anzac Avenue and Symonds Street education precincts where demand remains subdued.

Office vacancy in the Hamilton market sat at 6.6 percent in November 2022, with David Cashmore, director Bayleys Waikato commercial saying the city has cemented a pivotal place in the economic golden triangle.

“The CBD’s rejuvenation on the back of Council-led zoning and infrastructural changes and projected population growth is paying off.

“Stock quality has improved dramatically with a notable uptick in new-build and refurbished office inventory hitting the leasing market, and vacancy rates for prime stock around three to four percent.

“Well-financed developers are gearing up for the next cycle to capitalise on continued demand for better quality CBD office space.”

Bayleys Tauranga commercial and industrial manager Mark Walton said the city’s office vacancy rate of just 5.1 percent reflects strong demand for new A-Grade space with corporate occupiers often committing to above-market rents to future-proof business footprint.

“The Tauranga CBD Blueprint envisions exponential growth and transformation through to 2030 and includes 20 committed major catalyst developments underpinning $1.5 billion in investment in the city centre and laying the foundation for further opportunities,” he explained.

Three key office developments underway in Tauranga by experienced developers with strong track records will inject an additional 20,000sqm of premium office space in the market, namely the Northern Quarter on The Strand to be anchored by Holland Beckett Law, 2 Devonport Road for Craigs Investment Partners, and Tauranga City Council’s new administration hub at 90 Devonport Road.

With the capital’s office market dominated by government occupiers, Bayleys Wellington office leasing specialist Luke Frecklington said the flight to quality has been amplified due to seismic challenges, and the CBD’s office vacancy of 6.7 percent (November 2022), means tenants are jostling for space.

“Many corporates and government agencies have had to split teams across multiple buildings while seismic remedial work is carried out, or new-builds are completed, while lingering uncertainty around seismic guidelines means many building owners have delayed upgrade-related decisions.”

Corporate occupiers are trending north towards the parliament precinct with EY, Fujitsu and KPMG committing to space in Precinct Properties’ new high-amenity Bowen Street campuses.

Frecklington said most of the big corporate movement has either happened or there are precommitments in place, with the next significant move expected to be BNZ’s relocation to new 12-storey headquarters at 1 Whitmore Street.

Willis Bond’s proposed development at 110 Jervois Quay is seeking tenant precommitment, while Precinct Properties’ proposed 11-storey building at 61 Molesworth Street is understood to have precommitment to the Ministry of Foreign Affairs.

With Christchurch CBD office vacancy at just 4.6 percent, Bayleys general manager South Island commercial and industrial, William Wallace said quality runs the show with occupiers looking for green accredited buildings, and the majority of the A-grade pipeline having high tenant interest or precommitment.

“2024 will be the year of the great relocation as occupiers take up completed space in the CBD.”

Wallace said some of Christchurch’s most experienced and prolific developers are behind planned new CBD office stock, including iwi-owned intergenerational investor Ng?i Tahu Property.

“Local Carter Group has resource consent to rebuild on the former Holiday Inn site for a 4-storey development with street level retail, three office floors and underground parking,” he said.

“There is also strong demand for high-spec fully fitted-out serviced offices, while in the secondary office market, we’ve seen massive uptake of sub-500sqm office stock on the city fringe.”

- Article supplied by Bayleys