Office Rents Marching On

Office Rents Marching On

Auckland and Wellington office markets perform strongly on global stage, but still much cheaper than other world cities.

AUCKLAND, March 2, 2016

Colliers International’s Global Office Survey (based in USD/sqft/p.a.) of more than 150 cities for December 2015 showed Auckland and Wellington prime net rents ranked 54th and 73rd respectively. These latest rankings are slightly ahead of June 2015’s rankings of 61st and 84th respectively.

Rental growth of around 3% over the past six months in Auckland and Wellington in local currency rates were boosted by a slightly higher exchange rate at the time of the surveys. This assisted with our increase in rankings.

Similar to Auckland and Wellington, the top 10 markets all experienced the same or rising rents in local currency, but the USD exchange rate saw some markets lose ground. This was the most pronounced in the top 10 cities of Singapore, Beijing, Shanghai and Stockholm.

With net office rent at almost eight times the rate of Auckland, the top spot was taken by Hong Kong with an impressive NZD 2,911 per sqm p.a. Hong Kong’s rent was up 12% in the last six months and 18% for the year.

Demand for top-end space in Hong Kong remains strong with A-grade vacancy at 1.7%. However, Auckland CBD’s prime vacancy rate of just 1.2% remains the lowest in the Asia Pacific, with the exception of Manila at 0.3%, according to Colliers International.

The average prime yield in the top 10 was 3.9% with the softest rate at 5.5% in Shanghai. In June 2015, the top 10 had an average yield of 4.2%. Globally, investment interests in the major gateway cities continues to be strong as investors chase high yielding assets in an environment of low inflation and interest rates.

Rental growth and the strong occupier demand environment saw Hong Kong take out number one spot with a yield of 2.7%. However, this seems to be the lowest that Hong Kong can achieve (for now), remaining at this rate for the past 18 months. All other top 10 markets saw firming cap rates over the past six months.

With average prime yields of 7.1% and 7.7% for Auckland and Wellington respectively, this places us in a select group of office markets. Interest rates are much lower in most major countries, but the gap between local interest rates and yields are remarkably similar at around 2% to 3%, similar to Auckland and Wellington.

According to the latest Colliers International Global Investor Sentiment survey, our economic and population growth rates, benign tax regime, transparency, political stability and asset appreciation are all factors contributing to our strong outlook amongst international investors. Auckland and Wellington experienced capital value growth of 4.4% and 6.6% respectively over the last six months.

The ‘lower for longer’ interest rate environment, growing economy, supportive fundamentals and a growing number of hungry local and offshore purchasers for New Zealand office stock augur well for investment activity in 2016.

ENDS

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