Record low office vacancies are over in Auckland and Wellington and retail vacancies are rising too

Thursday, 17 September 2020

Office vacancies in the Wellington CBD fell to an 11-year low of 5.9 per cent in June 2019 but are rising now and forecast to keep rising and peak in mid-2023 at just under 10 per cent.

Retail and office vacancies are beginning to rise off record lows in Auckland and Wellington and will be noticeably higher in two years, leading real estate agency Colliers International predicts.

Covid-19 lockdowns and disruption to trade as well as the addition of new retail space was beginning to impact retail and office vacancies in the North Island’s two biggest cities.

Colliers director of research and communications Chris Dibble said that was coinciding with other impacts on the economy.

Auckland CBD office vacancies were tipped to hit about 11 per cent in mid-2022 from a record 4.7 per cent low in December last year, and Wellington CBD office vacancies to rise close to 10 per cent from a record low of 5.9 per cent last year, Colliers said.

*Wellington office vacancy dips to an 11-year low of 5.9 per cent

Covid-19 has hit Auckland retailers hard. Queen Street was practically deserted when Auckland returned to alert level 3 in August.

*Wellington’s record low vacancy for office space driving development

Auckland was forecast to have 86,000 square metres of available retail space, a vacancy rate of 4.6 per cent, by mid-2022, up from 68,000sqm now.

Hardest hid would be strip shopping with 40,000sqm of retail space available in mid-2022, a vacancy rate of 8 per cent, Colliers forecasts.

Chris Dibble, research and communications director at Colliers International in New Zealand, says landlords in Auckland are offering more incentives now to complete leasing deals.

Auckland’s shopping centres vacancy rates were lower currently at 2.5 per cent, 33,000sqm. Colliers forecasts them to rise to 46,000sqm, a 3.3 per cent vacancy rate, by 2022.

Typically, retail spaces were a lot smaller than office spaces so an extra 18,000sqm in Auckland in the next two years was significant, Dibble said. At present areas like Newmarket, Takapuna and Dominion Road had the highest retail vacancy rates. Rates in the core CBD were also rising a bit.

In Wellington Colliers is expecting vacant retail space in the CBD to peak at about 9000sqm, a vacancy rate of 8 per cent and up from 7600sqm now.

Dibble expects Wellington retail to be more resilient because of the large number of Government offices and workers and the high median incomes of central Wellington residents.

Wellington CBD’s retail vacancy rate was 6.8 per cent now, up from 4.2 per cent in June 2019. Vacancy rates were highest in Willis Street, then in Manners and Dixon streets, and in Courtenay Place where a lot of hospitality businesses are located, Colliers reports.

Office vacancy rates are forecast to be higher.

In Auckland, the CBD office vacancy rate had risen to 6.3 per cent in June this year from a record 20-year low of 4.7 per cent six months earlier, a Colliers report said, from the combined impact of new office space being opened and of Covid’s disruption of businesses.

Dibble said that was quite an increase, about 20,000sqm, with available space in the Auckland CBD now around 92,000sqm, similar to 2014.

Most of Wellington’s vacant office space is in secondary buildings rated B grade and lower.

Colliers is predicting vacant office space in Auckland to peak at 150,000sqm in mid-2022, an 11 per cent vacancy rate. Dibble said landlords were providing incentives more often now like contributions to fit outs to be more competitive.

Auckland last had more than 10 per cent CBD office vacancy in 2012.

Asking rents, or “face” rents, were not falling but flat, but the increasing use of incentives meant rents were falling. Incentives in Auckland were about 8 per cent to 12 per cent of the costs for a tenant and were likely to rise to 12 per cent to 16 per cent in the next two years, he said.

Wellington CBD vacant office space was expected to peak at 145,000sqm in mid 2023, a rate of just under 10 per cent. That compares with its 11-year low vacancy rate last year of 5.9 per cent.

The last time Wellington had more than 10 per cent CBD office vacancy was in 2016, Dibble said.

When BNZ staff shift to the planned new BNZ building in Whitmore Street in the Wellington CBD in 2023 vacancies will be created in the other locations they previously occupied.

The later peak in Wellington in 2023 was because the new BNZ building was completing in 2023 and staff would shift out of several locations into the new building, he said.

Wellington CBD office vacancy stood now at 6.5 per cent with about 90,000sqm vacant. Most of that was secondary office space, buildings graded B and lower.

Very little prime and A grade office space was available with a vacancy rate of 0.6 per cent, about 1900sqm. Prime and A grade buildings in Wellington were about 20 per cent of the CBD office space.

Dibble said incentives were generally not needed in Wellington to get prime and A grade buildings leased because of the low vacancy rate. The November 2016 Kaikoura earthquake had taken out a lot of space in the capital and that was still having an impact.

Not much was happening with retail developments in Auckland and Wellington. Projects in planning and feasibility stages were likely to face delays until more favourable economic conditions emerged, Dibble said.

Investor interest had turned to large format retailing and supermarket-type stores because of their defensive investment characteristics. An example was the recent sale of 98-100 Abel Smith Road, Te Aro, Wellington, tenanted by Liqourland, for $6 million to a local private investor.

The 13,700sqm home hardware retailer Mitre10 in New Lynn, Auckland, recently sold for $32.5m.