Auckland’s Commercial Property Markets remain positive

Auckland’s economic outlook remains positive for 2014, filtering its way into business and consumer sentiment and encouraging both investors and occupiers to act in order to take advantage of conditions that encourage growth.

JLL’s latest Pulse reports show that the office market continues to be the favoured asset class. The previous six months have seen sales volumes exceed the level of transactions achieved in the first half of 2013. Occupier demand continues to gain traction as tenants scrambling to secure quality office space before uplift in rents and preference for Prime space prevails.

Mark Grant, National Director of Markets for JLL says, “In line with increased occupier demand, we anticipate a continuation of strong investor demand resulting in a continued firming of yields to new low levels. Further improvement in the Auckland office market is expected over the short-term, being driven mainly by demand for Prime assets. Secondary stock will lag, however, it is likely to follow the same trend over the medium term.”

Increasing tenant demand combined with a restricted supply has resulted in positive net absorption. Overall Vacancy rates in the CBD declined over the second half of 2013 to reach 10.5%. This decline was led by strong take-up in the CBD Core, combined with the increased occupier demand for better quality and location.

The Auckland CBD office pipeline is likely to remain dormant over the next 12-24 months, with only developments in the CBD Fringe and Viaduct Harbour underway. As accommodation options continue to remain scarce in the CBD Core and Frame, we expect an increased level of tenant enquiry in the Fringe over the medium term, resulting in upward movement in rents over the next 12 months. Limited new build development in the submarkets, plus longer fixed term leases, will help New Build rents remain firm for the foreseeable future.

The Southern Corridor remains well positioned to see continued growth in both rents and capital values, especially for new build properties. Given the increasing development levels within the precinct, vacancy levels will return to below the long term average with positive absorption heading forward as both supply and demand come back into sync.

Grant continues, “Commercially astute occupiers continue to look to secure the highest quality space before an imminent upswing in rents. This increasing occupier demand combined with minimal supply is likely to result in strengthening landlord’s position relative to tenants. Investment activity will continue to remain strong for the foreseeable future.”

Hesitance within the Retail sector is lifting as increasing demand streams out from the CBD with sound investor appetite supporting values.

Vacancy in the overall Auckland retail market has remained stable. While core retail continues to perform well, other discretionary spending remains patchy. Tenants have remained stable in their current position as trading conditions have started to stabilise but remain watchful of circumstances significantly deteriorating.

Chris Beasleigh, National Director of Retail Sale and Leasing says, “There remains some hesitation from tenants to risk higher rents in currently unproven areas, however this may change in the coming months as the financial performance of retailers becomes more viable and the recovery continues to take hold. These economic improvements will positively impact new development with a focus on big-box and food retailers initially.”

Development levels have slowed and an overall improvement within the retail environment is needed before retailers commit en mass to new developments. Much of the new development is now larger format retail such as Westgate and neighbourhood centres which are being developed in the growing fringe suburban areas.

Beasleigh continues, “We believe that when improved economic fundamentals and confidence find their way into shopper’s pockets, a strong and quick surge in retail spending will lead rents higher. Given the current conditions, we feel retailers are preparing for this, and therefore this could be sooner than expected. Retail investments will continue to remain a favoured option with investors, and we predict that yields will continue to decline.”

The stock base in the Auckland Industrial north area has seen a small downward movement, with an overall decline of around 719 sqm. A large number of tenant movements as well as restricted supply have kept rents stable against a firming yield profile. The Auckland South industrial market has seen supply increase after several new builds were completed over the period. A continued balance between supply and demand has resulted in limited rental movements but investors continue to show strong interest.

Sam Smith, National Director of Industrial Sales and Leasing says, “We expect an increase in tenant demand over the next 12 months which should result in positive absorption and a decrease in vacancy rates.”

Smith continues, “With several larger projects either starting or coming online over the next six months indicates that strong demand should be expected over the coming year, boosting absorption going forward.”

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