Developments Take Shape

Transcription

1 Market Indicators Research Report 2017 AUCKLAND METROPOLITAN OFFICE Developments Take Shape Accelerating success.

2 33 Broadway 33 Broadway, Newmarket Augusta Capital has entered into a development agreement for $143 million with Mansons TCLM to purchase the office development at 33 Broadway in Newmarket. Anchor tenants Mercury and Tegel Foods will occupy 77% of the 13,103 sqm building. The six level building will feature three levels of secure basement parking with charge points for electric cars and onsite end of trip facilities. It is expected to achieve a 5 Green Star rating upon completion.

3 Contents Transactions / Development Table 4 Introduction 6 Key Findings 6 Market Indicators Table 7 Metropolitan Office Market Review Map 8 City Fringe 9 West Auckland 9 Southern Corridor 10 Auckland South 10 North Shore 11 Outlook 11 Join our LinkedIn group: Colliers International New Zealand Network

4 CITY FRINGE WEST AUCKLAND Development 33 Broadway, Newmarket NLA: 13,103m² Status: Construction Completion: Q Developer: Mansons TCLM Anchor Tenant: Mercury & Tegel Catalina Bay, Hobsonville Point NLA: 6,000m² Status: Construction Completion: Q Developer: Willis Bond & Co Anchor Tenant: HLC Lease 17 Hargreaves Street, St Marys Bay NLA: 3,300m² Lessor: Mansons TCLM Lessee: Gentrack NorthWest - Stage 2, Massey North NLA: 2,200m² Lessor: Stride Property Lessee: Constellation Brands Sales 33 Broadway, Newmarket $143m Yield: 7.25% Vendor: Mansons TCLM Purchaser: Augusta Capital 3 & 5-9 Hugh Brown Drive, New Lynn $7.5m Yield: Undisclosed Vendor: Private Vendor Purchaser: Property Managers Group Infrastructure City Rail Link A new 3.4 km underground rail line linking Britomart in the city centre with the existing western line at Mt Eden. Northwest Transformation Aims to improve public transport options and implement new park and ride facilities at Hobsonville Point. Status: Construction Completion: 2023 Status: Implementation Completion:

5 SOUTHERN CORRIDOR AUCKLAND SOUTH NORTH SHORE 9-15 Marewa Road, Greenlane NLA: 9,200m² Status: Proposed Completion: Q Developer: Kimberley Trust Anchor Tenant: Undisclosed No.1 Sylvia Park NLA: 11,370m² Status: Construction Completion: Q Developer: Kiwi Property Anchor Tenant: IAG & BizDojo 55 Corinthian Drive, Albany NLA: 5,390m² Status: Construction Completion: Q Developer: APEC Property Development 600 Great South Road, Greenlane NLA: 1,100m² Lessor: Goodman Lessee: Griffins Foods Manukau Tertiary Centre, Manukau NLA: 4,200m² Lessor: Manukau Institute of Technology Lessee: MBIE 28 Hurstmere Road, Takapuna NLA: 600m² Lessor: Family Trust Lessee: MSL Training Group 650 Great South Road, Ellerslie $31.8m Yield: 8.20% Vendor: Stride Property Purchaser: Maat Consulting Great South Road, Penrose $40.9m Yield: 7.15% Vendor: Goodman Purchaser: Private Investor Lake Road, Takapuna $24.5m Yield: 5.74% Vendor: Private Vendor Purchaser: Private Investor AMETI - Stage 2 Transport improvements from Panmure to Botany via Pakuranga, including a dedicated busway and roading improvements at the Reeves Road flyover at Pakuranga town centre. Status: Investigation Completion: East West Link A new four-lane road on the northern side of the Mangere Inlet connecting SH20 at Onehunga and SH1 at Mt Wellington. Status: Investigation Completion: Auckland Northern Corridor Aims to provide better links between SH1 and SH18, opening up access to the Western Ring Route and airport. Status: Design Completion:

6 Introduction Auckland CBD vs Auckland City Fringe Office Rents Auckland is the economic powerhouse of New Zealand contributing 37% of the national GDP. Growth in population, employment and increased construction activity brings new challenges. Record low vacancy rates in the CBD have made it difficult for businesses to find affordable office space. The spill over effect has seen strong demand for metropolitan office accommodation where only 108,000 sqm (6.3%) is still available, well below the 10-year average of 8.2%. Business confidence remains high, with many companies over the last few years enjoying a pattern of steady growth. There is a greater focus on improving office efficiency and cost savings. Average Net Face Rent ($/m 2 ) $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 Auckland CBD Prime Auckland CBD Secondary Auckland City Fringe Prime Auckland City Fringe Secondary Forecast Demand for more efficient, agile and flexible space is on the rise. Key Findings Auckland s metropolitan office vacancy rate is 6.3% (March 2017), increasing fractionally from 6.2% a year ago. Prime office vacancy rate is 6.1% representing just over 21,500 sqm of space available in metropolitan Auckland. Source: Colliers International Research Metropolitan Auckland Office Market Vacancy Rates Overall City Fringe Southern Corridor South Auckland West Auckland North Shore Over the last six months 29,300 sqm of new prime office stock has been completed. 25% 20% With record low vacancy in the CBD, metropolitan offices are becoming a popular option for tenants, especially locations close to public transport, motorway access and amenity. Currently 65,686 sqm is under construction and 29,200 sqm is proposed for future development. Vacancy Rate 15% 10% 5% 0% Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Source: Colliers International Research Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 There is a greater focus on attracting and retaining staff through quality workplaces. Underlying economic drivers remain strong. Population and employment growth will help keep vacancy low and rents buoyant over the next 12 months. Metropolitan Auckland Office Development Pipeline Until debt costs and alternative asset returns rise significantly, syndicators will continue to be active. 28,713 65,686 "There is a greater focus on attracting and retaining staff through quality workplaces." 20,000 9,200 Source: Colliers International Research 6

7 Auckland Metropolitan Office Market Indicators Q North Shore City Fringe Southern Corridor Mt Wellington / Penrose East Auckland Airport Corridor Manukau West Auckland Precinct Vacancy Rate (%) Takapuna 3.7% Albany 0.9% Mairangi Bay 8.1% North Harbour 6.5% Grade Net Face Rents ($/m² pa) Outgoings* ($/m² pa) Incentives (%) Capital Value** ($/m²) Market Yields (%) LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH A ,930 5, % 7.25% B ,030 4, % 8.25% C ,515 3, % 8.75% A ,200 4, % 7.50% B ,825 3, % 8.50% A ,600 4, % 7.50% B ,095 4, % 7.75% C ,515 2, % 8.75% A ,940 3, % 8.00% B ,790 3, % 8.25% C ,400 2, % 8.75% New Build A ,130 5, % 7.75% Newmarket 6.9% Grafton 6.9% K'Road 16.4% Newton 6.7% Parnell 3.3% Ponsonby / College Hill 8.1% A ,645 6, % 7.00% B ,875 5, % 8.00% C ,830 2, % 8.75% A ,535 4, % 7.50% B ,400 3, % 8.75% C ,730 2, % 9.25% A ,465 4, % 7.50% B ,620 2, % 9.25% C ,365 1, % 10.25% A ,190 4, % 8.00% B ,220 3, % 9.00% C ,620 2, % 9.25% A ,000 5, % 7.00% B ,875 4, % 8.00% C ,890 2, % 9.00% A ,285 6, % 7.00% B ,375 3, % 8.00% C ,665 2, % 9.00% New Build A ,715 8, % 7.00% Southern Corridor 6.6% A ,355 4, % 7.75% B ,590 3, % 8.50% C ,685 2, % 9.50% New Build A ,665 5, % 7.50% Mt Wellington/Penrose 4.2% A ,875 3, % 8.00% B ,000 2, % 9.00% C ,200 1, % 10.00% New Build A ,000 5, % 7.50% East Tamaki/Highbrook 5.6% Botany/Howick 3.5% A ,910 4, % 8.25% B ,945 2, % 9.25% C ,240 1, % 10.50% B ,730 2, % 9.25% C ,400 1, % 10.00% New Build A ,135 4, % 7.50% Airport Corridor 14.4% A ,940 4, % 8.00% B ,730 2, % 9.25% C ,130 1, % 9.75% New Build A ,870 4, % 7.75% Manukau 4.8% A ,705 3, % 8.50% B ,730 2, % 9.25% C ,115 1, % 10.75% New Build A ,870 4, % 7.75% West Auckland 6.5% A ,630 3, % 8.75% B ,755 2, % 10.25% C , % 11.00% New Build A ,745 3, % 8.75% Source: Colliers International Research * Exclusive of rates (except North Shore) **Assuming fully leased at market rates 7

8 Albany $ % 0% 17 KEY Average Prime ($/m 2 ) Average Prime Market Yields (%) $ % 1.1% North Harbour $ % 0% $ % 6.9% 18 NORTHERN MWY Mairangi Bay $ % 20.8% $ % 6.1% Average Secondary ($/m 2 ) Prime Vacancy Rates Secondary Vacancy Rates Average Secondary Market Yields (%) Trend 0%/$0 Trend based on Mar Actual UPPER HARBOUR MWY Takapuna $ % 0% $ % 4.9% NORTH WESTERN MWY Ponsonby/Freemans Bay $ % 5.2% $ % 9.2% 16 West Auckland $ % $ % Newton* $ % 6.7% 17.5% 5.5% Grafton $290 $ % 8.6% 0% 8.4% Karangahape Rd $290 $ % 10% 0% 18.3% Southern Corridor SOUTH MWY WESTERN $ % 4.7% $ % 7.1% Parnell $ % 2.0% $216 Newmarket 8.3% 8% 3.7% $ % 3.3% $ % Mt Wellington/Penrose $ % 15.9% $170 9% 2.4% 9.4% Botany/ Howick* East Tamaki/Highbrook $ % 9.9% $175 $ % 3.5% 0% Airport Corridor $ % 20.9% $ % 4.6% 20 Manukau $ % 0% $ % 5.2% * No prime stock Auckland Metropolitan Office Market Review 2017 compared to 2016 Occupier Demand Enquiry Business confidence Supply Demand Prices Vacancy Prime vacancy 6.1% Secondary vacancy 6.4% Spec build activity Net Rentals Average prime net rents $304/m 2 Average secondary net rents $187/m 2 Investment Sales Average prime yields 7.5% Average secondary yields 6.4% Buyer groups Private, institutions & syndicators 8

9 City Fringe High demand for good quality office space in the City Fringe triggered new developments at 33 Broadway in Newmarket, 119 GNR in Grey Lynn and St George Corporate Centre in Parnell. These developments will bring more than 28,500 sqm to the prime sector stock over the next two years. Businesses are seeking the efficiencies that large floor plates can provide. Mansons TCLM s new development at 33 Broadway is a prime example, with Mercury moving from its Carlton Gore Road, Albert Street and Great South Road offices to streamline its operations. Prime office vacancy in the City Fringe precinct is at a record low of 2.6% (March 2017), with only 3,800 sqm vacant. The demand for prime space has filtered into pre-commitment of new developments. There is now approximately 46,000 sqm of total vacant space in Auckland s City Fringe, a slight increase from a year ago. The increase is largely due to pockets of secondary vacancy on Karangahape Road. The area is changing, with the arrival of Tesla s state of the art showroom on the corner of Hereford Street as well as many quality residential apartment developments. Eventual completion of the City Rail Link, more refurbishments of character space and improved retail amenity will further boost the area s appeal and encourage office tenants to move into the area. Syndicators have been active in the City Fringe, with Mansons TCLM selling its new development anchored by Mercury and Tegal at 33 Broadway to Augusta Capital for $143 million. The Cider Building on Williamson Avenue in Ponsonby was another syndication and was sold down by Oyster Group during West Auckland New developments such as Stride Property s NorthWest (Stages One and Two) have added an additional 7,700 sqm of prime stock over the last two years. The demand for prime office stock is high with Stage One fully occupied and only 1,000 sqm left in NorthWest Stage Two. The mix of tenants is typically existing West Auckland tenants either upgrading or expanding their requirements, or tenants establishing West Auckland branches. The mixed use development at 102c Hobsonville Road has been met with strong demand, with half of the office suites sold, leased or under contract. This development will boost prime stock by 1,600 sqm once completed in mid The mix of existing and new premises provides a wide range of leasing options and rental levels for tenants, with the average net face rent at $245 and $153 per sqm for prime and secondary office space respectively. These rental figures are well below the metropolitan office averages. "The demand for prime office stock is high" 119GNR 119 Great North Road, Ponsonby Giltrap Group are taking occupation on the ground and first floors of a new development in Grey Lynn. The nine level mixed-use development at 119 Great North Road is due for completion in mid The building has been designed by architects Warren and Mahoney and is targeting a 5 Green Star rating and a 4 Star (excellent) energy performance rating under NABERSNZ. 9

10 Southern Corridor The improvement in the precinct s amenity and accessibility to public transport and main highways in recent years has enabled the Southern Corridor to become a highly desirable office location, often offering large floor plates and high car parking ratios. Prime vacancy in the Southern Corridor has almost halved since March 2016 to 4.7% (March 2017). The reduction was mostly driven by the absorption of over 3,500 sqm of vacant space within The Millennium Business Centre. The rental market is also seeing a shift, with landlords pulling back on fit out incentives and instead providing premises with good quality existing fit outs ready for tenants to move into. Recently, Oyster Property Group settled the largest single commercial office transaction in New Zealand with the purchase of three buildings (Millennium Business Centre Phase One, Phase Two and Yellow HQ) at Great South Road Greenlane, for around $210 million. The buildings are offered up for syndication, with 448 parcels of $250,000 each to raise around $112 million. Investment yields in the Southern Corridor are currently at record lows at 7.3% and 8.6% for the prime and secondary grade respectively. The difficulty at the moment for prospective purchasers is finding properties. This has seen competitive pricing when stock becomes available. Auckland South The main commercial areas in Auckland South include Manukau, Mt Wellington, East Tamaki and the Airport Corridor, making up just over 329,000 sqm or 19% of the total metropolitan office stock we survey. Average prime rents in these areas have stayed relatively steady over the past year, currently ranging between $235 and $320 per sqm. Overall vacancy has climbed to 14.4% in March 2017, reflecting the completion of Quad 7 by Auckland Airport at the beginning of Kiwi Property is undertaking a new $80 million office development at Sylvia Park Shopping Centre. IAG New Zealand has agreed to a 12 year lease, taking approximately 3,300 sqm (29%) of office space in the 10 level complex. The tower will overlook a new dining precinct, The Grove, and forms part of a wider strategy to further develop Sylvia Park as a town centre. Construction is expected to be completed in Q Further south, Goodman has announced plans for another office building and adjoining multi storey carpark to be built at The Crossing within Highbrook Business Park. Following the strong demand for Building 5, the new offices will add approximately 3,009 sqm and 324 car parks, further intensifying development within East Tamaki. "The difficulty at the moment for prospective purchasers is finding properties." Millennium Business Centre Great South Road, Greenlane The three hectare site at Great South Road, Greenlane (Millennium Business Centre) was developed in part by Mansons TCLM and completed by Goodman Group. Oyster Property Group purchased the property for about $210 million reflecting a 7.25% yield, making it New Zealand s largest ever single commercial office transaction. The property was offered up for syndication and boasts a commercial hub of seven office buildings totalling 43,500 sqm in net lettable area. 10

11 North Shore Tenant demand remains strong on the North Shore, particularly in the prime sector, as the availability of office space becomes heavily constrained. Our latest survey in March 2017 shows only 2,340 sqm of prime office vacant space. Since then, Mitre 10 s new head office on Corinthian Drive has been completed and more space has been leased at 61 Constellation Drive which now only has one floor remaining. The low vacancy has driven rental rates higher, with fewer incentives being offered. Average prime rent now sits at $318 per sqm. Vodafone is leaving its long established Auckland CBD headquarters on Fanshawe Street and heading into its $200 million redevelopment at Smales Farm in Takapuna by the middle of Smales Farm is also underway with a speculative co-working development known as B:Hive (Business Hive). The building will offer around 11,000 sqm of office space, with each floor divided into varying-sized but flexible work spaces, and large shared spaces with a concierge service, aimed towards small to medium businesses. Unlike traditional lease arrangements, rental terms will be flexible, allowing tenants to lease for months or years as required, and to alter their rental as their space requirements changes. The building will form part of an innovation precinct alongside the refurbished Vodafone premises. Investment yields on the North Shore are now reaching new lows. Prime yields dropped 14 basis points over the last year to 7.2% while secondary yield dropped 44 basis points to 8.1%. The lack of stock for sale is once again the key driver of this yield shift. Outlook Auckland is growing rapidly driven by strong population and employment growth. Traffic congestion and the difficulty in finding suitable office space in the CBD is driving demand for office accommodation in the metropolitan areas. The dispersal of demand around the city highlights that not all businesses need to be in the CBD. The most successful buildings have ticked the boxes for location, amenity and car parking. As the economy continues to grow, so will the demand for office space. The most recent developments completed have helped alleviate some of the demand pressures created over the last few years. Looking forward, there is a healthy supply of developments in the pipeline to help bridge the balance between demand and supply. Vacancy rates are expected to remain low. Syndication was a prominent feature in 2016 supported by a period of low interest rates. While there has been talk of debt cost rising, it hasn t happened yet and alternative asset returns, for example term deposits, are still modest. Until the rates rise significantly, syndicators will continue to be prominent. "Auckland is growing rapidly driven by strong population and employment growth. B:HIVE Taharoto Road, Takapuna Smales Farm is developing the B:HIVE (Business Hive) on Auckland s North Shore. The innovative office building will offer around 11,000 sqm of office space across five levels and have a capacity to house up to 1,000 people. The B:HIVE will offer agile and flexible working space that is easily adaptable to meet tenants growth and operational changes. The development is positioned within the wider Smales Farm Technology Office Park, with a number of existing and new services expected to complement the development s environment and experience for tenants. Completion is estimated for the third quarter of

12 Quad 7, Auckland Airport Developer: Auckland Airport Architect: Warren & Mahoney For more information contact: Alan McMahon National Director Research & Consulting Leo Lee Research Manager Elena Christodoulou Research Analyst Emily Duncan Research Analyst Aimee Simpson Research Co-ordinator 2015 & 2016 RICS Award Chris Farhi Director Strategic Consulting Caity Pask Senior Analyst Strategic Consulting Colliers International Level 27, SAP Tower 151 Queen St, Auckland Colliers International Research and Consulting offers a range of commercial and residential property solutions: Property Investment strategies Demand & Supply Studies Market Analysis & Forecasts Feasibility Analysis GIS Spatial Analysis Catchment Analysis Lease Audit & Benchmarking Site Options Analysis Corporate Real Estate Strategy Financial Analysis Business Cases Whilst all care has been taken to provide reasonably accurate information within this report, Colliers International cannot guarantee the validity of all data and information utilised in preparing this research. Accordingly Colliers International New Zealand limited, do not make any representation of warranty, expressed or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto. All content is Copyright Colliers International New Zealand Limited 2017 and may not be reproduced without expressed permission. Licensed REAA 2008