Auckland office and industrial markets remain tight
(Headline abbreviated, original headline: Auckland’s office and industrial markets remain tight but threat of over-supply looms over retail)
Relentless demand for quality industrial stock, the search for temporary office accommodation associated with the delay in completion of Commercial Bay, and the looming threat of over-supply to the retail sector headline JLL’s third quarter Auckland market snapshot reports.
Large prime vacancies remain few and far between in the city, with the demand for temporary office accommodation surging due to the signalled later completion date of Commercial Bay. The opening of the new PwC Tower with 39,000 sqm (almost entirely pre-leased) is expected to primarily impact secondary stock as occupiers are presented with long-awaited backfill options in the prime market. Demand remains for quality and accessible office accommodation outside of the CBD too, particularly so in the Southern Corridor with the pressure pushing the average rental rate up 2.8%.
Low vacancy remains an issue for tenants seeking new or larger industrial premises, with no structural changes to tight market conditions in 3Q19. The South Auckland and North Shore markets both hit record low vacancy rates with 1.9% and 1.4% over the quarter respectively. This has resulted in further upward pressure on rental growth. However, Silverdale has a higher vacancy of 3% as it remains in expansion mode, while the North West (Westgate in particular) market has been pinned as a key urban growth area due to its infrastructure growth and availability of land.
In the CBD upper-tier retailers continue to drive elevated demand for prime CBD retail space. JLL expects Commercial Bay to satisfy much of this high-end demand upon its completion with pre-leasing levels already up to 95%. There were no large transactions over the quarter, possibly due to the growing threat of e-commerce leaving investors wary of acquiring underperforming assets. Outside of the CBD, it is becoming increasingly apparent that developers may have overestimated the supply response with a significant amount of space still under construction and rents continuing to fall.
JLL’s Market Snapshots for Auckland can be read in full at JLL’s property market research page. JLL Head of Research Paul Winstanley is available for further comment.