Offices are expected to retain a key role in corporate culture and real estate strategy, though with a greater emphasis on remote working as well as a rethink on space and premises strategies.
That’s according to The Future of the Office Space research report released by Colliers International, which analyses trends across Asia Pacific emerging from the Covid-19 pandemic.
The report looks at Auckland along with eight other core Asia Pacific markets – namely Shanghai, Beijing, Tokyo, Hong Kong, Singapore, Bangalore, Sydney and Melbourne.
Ian Little, Associate Director of Research at Colliers in New Zealand, says Auckland’s market is unlikely to be as badly impacted as those within many of the region’s other major markets.
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“The report forecasts Asia Pacific’s office vacancy across the eight core markets to peak in late 2022 at 14 per cent, while we expect Auckland’s vacancy to peak a bit earlier and at a lower rate of around 11 per cent,” he says.
“The report also ranks Auckland among four cities of the eight Asia Pacific core markets that are expected to lead the region’s rental recovery.
“Rents in Auckland, Singapore, Bangalore and Melbourne are likely to increase by about 2-3 per cent on average per annum when spread across the next five years.”
Sam Harvey-Jones, Colliers’ Managing Director of Occupier Services Asia, says the office will retain a key role in corporate real estate strategy, but some firms will shift to a more diverse and employee choice-based real estate strategy.
“This may involve a combination of remote working, flexible workspace and a hub-and-spoke model where the tenant retains its CBD headquarters, perhaps with a reduced footprint, coupled with suburban satellite offices.”
Little notes that in Auckland many of the same trends could emerge with an increase in remote working, albeit that this is likely to be for just one or two days per week and is likely to vary across different occupier sectors and teams. However, maintaining productivity will be a key consideration.
“Occupiers who have incorporated a hub and spoke model will also potentially look to create more flexibility rather than fixed-point leasing solutions. This could be undertaken through greater use of flexible workspace operators when the time suits, particularly for groups involved in short-term projects.
“Occupiers should also take into consideration the office as an anchor for collaboration and promotion of culture and mission.”
From an investment perspective, the report says there is good value to be found in office assets.
Investors should consider widening their search for prime, core assets from traditional CBDs to decentralised districts and business parks.
They should also consider tactical partnerships with flexible operators to attract and retain tenants by extending services and offerings. This could require investors to look beyond standard valuations.
John Marasco, Colliers’ Managing Director of Capital Markets and Investment Services for Australia and New Zealand, commented: “For the immediate future, it seems that there will be a bifurcated
approach in investor strategy in the Asia Pacific region involving either core, low-risk assets, or opportunistic purchases of discounted distressed properties.
“On the positive side, we anticipate a low-interest environment through the end of next year.”
Little notes that despite some uncertainty and short-term disruption to market conditions from Covid-19 in Auckland, low interest rates are fueling investment activity, especially for prime properties with strong covenants.
“The flight to quality and limited stock available to purchase will likely elevate the level of competition amongst experienced investors and drive values higher,” he says.
“In addition, New Zealand’s approach to dealing with the virus has enhanced its international reputation as a safe haven, which is likely to spur greater overseas interest in local assets.
“In the short term, and likely for the remainder of 2020, the ability of overseas investors to transact will be tempered by border restrictions in place. A sharp surge in international activity is anticipated once restrictions are lifted. Prior to this, however, domestic players look likely to take the opportunity to fill the gap.”
