Auckland commercial property demand outstripping supply

Commercial property value in Auckland’s CBD is flying high despite the slowdown on the residential side, according to Auckland’s largest non-bank property development financier.

New Zealand Mortgages & Securities (NZMS) director James Kellow says the demand for quality office space in the CBD is far greater than the current supply, and the recent spate of office-to-hotel conversations have done nothing to ease the pressure. With no adequate replacement, the gap between supply and demand has made Auckland commercial property more valuable than ever before.

“Our view is good commercial buildings in downtown Auckland have never been worth more than they are today,” Kellow stated.

“This may surprise many given much of Auckland’s housing market is going sideways. However, in the central city desirable contemporary office stock is limited, overall vacancy rates remain low, and rents are still going up.”

Kellow says that despite a number of large new-build projects being undertaken, the majority of office space is pre-leased before the construction is completed, so it doesn’t fill the demand gap for leasable office space. With many businesses moving from older buildings into newer developments, the old space is usually redeveloped as an apartment or hotel – but the extinguished supply does not get property replaced.

“A lot of bank funding has headed towards the residential sector, as developers can struggle to secure bank finance for developing commercial buildings for offices,” Kellow explained. “What’s more there’s just not the sites to pick off, with very little development land actually available.

“It would be very difficult to find a commercial building in downtown Auckland that has lost value, with the only exceptions being buildings that landlords have simply not kept up.

“You’ve also got to remember that many of the businesses today looking for new office space see it through a very international lens. They have international property managers making the decisions overseas based on international specifications and hence they demand international-grade buildings.”

Kellow says that in light of these trends, Auckland’s CBD can expect to see a renewed wave of investment in 2019.