Commercial lease property in Auckland at a crossroads Posted 2011, 10 May Auckland businesses face an interesting time in the coming months as business confidence picks up, major event such as the Rugby World Cup hit town, and commodity prices continue upwards. BNZ economist Tony Alexander says business confidence is the best it’s been for nearly 18 months. Coupling these facts with research data on the commercial rental market, I’m suggesting the market is about to hit a very interesting crossroad. Currently there are still high vacancies and some dazzling incentives on offer for tenants picking up space in both the CBD and non-CBD locations. These incentives can run to a year’s free rent on a six-year lease, and offers to complete fit-outs in lieu of several month’s rent. Business owners and property owners are starting to act and pick up new opportunities and locations, but decision making processes still remain cautious and slow. My forecast for the immediate future is that there is going to be little new supply of buildings coming on stream in the next couple of years. In the financial crisis, we lost a number of property developers, and finance is still tight for anyone considering a high rise building project. However, also coming up are some significant projects that could quite dramatically change Auckland’s commercial property market. One in particular is the proposed inner city rail loop. The construction itself and the arrival of new stations linking downtown with Upper Queen St, K Road and Mt Eden could vastly change the viability and attractiveness of locations in the non-CBD areas of uptown Auckland. Right now comparing this time with the recovery after the slumps of 1987-1991 and 1998-2001, we are in far better shape. In ’87-’91, vacancies hit 35 percent, whereas now we are sitting between 13 and 20 percent vacancy levels (the number varies depending on whether or not you count space offered for sublease). We are at a crossroads as the economy becomes more buoyant. There are enough vacancies in the market to create good incentives, so it is a very good time to be making decisions about property for the next few years. As things pick up, so could rentals, and vacancies could well diminish before more new stock gets built.