Auckland CBD Office | Report First Half 2023

Auckland’s CBD office market vacancy continued to trend up over the latter half of 2022. The overall vacancy rate reached a new cyclical high of 12.9%. The latest figures illustrate the growing divergence in demand between prime and secondary grade premises. Prime grade vacancy, despite additions to supply, held steady at 8.3% in Colliers’ December, survey compared with 8.2% in June. Secondary grade vacancy at 17.1% in December is up from 16.4% six months earlier. The growing influence of environmental considerations in shaping office demand is also evident in the results. The vacancy rate within Green Star rated premises is at 5.5%, compared to non-Green Star rated premises at 16.2%.

Between December 2020 and December 2022, the total supply of CBD office space decreased by around 29,000 sqm. However, the supply of prime quality space increased by almost 28,500 sqm, while secondary supply fell by almost 57,500 sqm. Currently, there are projects underway that will introduce approximately 84,200 sqm of new space to the CBD's inventory over the next three years. Although development activity may slow from recent levels, the demand for high-quality, environmentally sustainable buildings will continue to drive development intentions. Therefore, further project announcements can be expected.

During the second half of 2022, prime grade rentals continued to trend upwards due to inflationary pressures and an active leasing market. Average net face prime rentals now stand at around $513 per sqm, but a wide range in rates is being achieved. In addition, new build office rents are being elevated by rising construction costs.

Rising debt costs and margins, resulting from local and offshore reserve banks tackling inflation, have led to a softening of yields. While evidence remains limited for all building grades and locations, incremental adjustments are being made. Currently, average prime office yields sit at around 5.8%, with further softening anticipated over the course of 2023. The softening of yields has also resulted in an easing of capital values. As a result, there has been a sharp downturn in investment activity, with the focus currently shifting towards add-value and development projects due to the uncertainty surrounding when and at what level interest rates will peak.

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