Double whammy in Auckland’s commercial rental market Posted 2009, 03 November People often ask me what’s going on in the commercial rental property market. They’re all keen to hear the real oil, so I thought I would run through some current trends and some predictions. I must as always qualify this by saying that there will always be exceptions to the rule and while these are broader trends, the situation will always vary on a property by property basis. The current market is undergoing a double whammy experience of… High vacancy levels because of the downstream affects of the recession on tenants and, The large supply of commercial space which has recently flooded onto the commercial property market. Now I need to clarify that I am talking here in particular about office space in Auckland’s CBD. The CBD is officially a T-shaped area running down Queen Street from Victoria Street to the Ferry Buildings, east to the Vector Stadium and west to Beaumont St by Westhaven. The interesting aspect about this double whammy is that the far bigger influence is the over supply, rather than the recession. Vacancy levels are high not just because businesses are struggling, but mostly because a number of new buildings have been completed and large organisations have vacated their old premises, creating an over supply of space. Rentals have dropped significantly too, so that A-category space in the CBD has in many cases dropped in value by about $100 a square metre to around $300, and in the B and C categories it is down around $40 a square metre to around $160. Vacancy levels are very high at more than 15 percent (if you include sub-lease space, as you should) and I consider they are going to stay that way or go higher through 2010. My crystal ball tells me it will not be until 2011 that we are likely to see a return to equilibrium between supply and demand. It is worth noting that vacancy levels have been higher, up over 30 percent in 1991-92 after the 1987 crash, and again a blip in 2000. The impact of these high vacancy levels is not great for investors or developers and we must remember that these people are the lifeblood of the property market, and although they can attract a lot of flack, they go out on a limb and take the chances that create a growing and vibrant city. But what is in all this for the business owner or commercial property tenant? Well it’s a great time actually, because as I have often said before, there is plenty of room to make deals and pick up landlord’s incentives. Landlords are dead keen to fill that vacant space and while recognising that things will vary on a case by case basis, there are definitely some highly attractive deals on offer. In fact in some cases business that might have thought the cost of moving to better premises would be prohibitive could find incentives around that could allow them to move for zero cost. Overall, experience tells me that there are always cycles of supply & demand in property that can be far more influential even that recessionary times, so when supply is high it is definitely a buyer’s or in this case a tenant’s market.
