JLL releases its New Zealand Office Market Snapshots for the second quarter
JLL’s latest New Zealand Office Market Snapshots has provided snapshots into how the office market is faring across Auckland, Wellington, and Christchurch in the second quarter of 2023.
The real estate market research, which sourced data from several reputable sources including on-the-ground insights from the firm’s own departments, revealed a widening gap between prime and secondary office space for lease, as companies “seek properties that are better equipped to attract and retain the best talent in the market.”
Most markets also saw a softening in average net rents and yields.
Auckland CBD
Average net prime rents rose 1.6%, or +$8 per sqm, in the June quarter to $566 per sqm, from 1Q23’s $558 per sqm level. Overall vacancy in the CBD office, market, meanwhile, jumped to 11.8% from the previous quarter’s 10.8%.
Over the next five years, average net prime rents are expected to rise by 12.1%, to reach $635 per sqm by December 2027, while average net secondary rents are predicted to lift by 6.7% to reach $277 per sqm over the same period.
Average net prime yields tumbled by 19bps in 2Q23 from the previous quarter, with secondary falling by 25bps. Both the upper end of prime yields and secondary yields, pushed out in the second quarter, by 13bps and 25bps, respectively, in what according to JLL, has been a trend across New Zealand’s markets since 2022.
Auckland North Shore
For the first time since 3Q21, average net rents for Takapuna finally shifted, now standing at $338 per sqm (+$18 per sqm). In comparison, overall average suburban net rents grew by 3.9% to reach $323 per sqm.
Auckland suburban’s overall vacancy kept steady at 6.3%, although there were changes within the suburbs. In Takapuna, vacancy was down to 5.7% from 6.5%, due to several leases along Anzac Street and Como Street. And in Albany, vacancy increased to 14.6%, from 7.7%, due to a combination of vacancies over several properties on Corinthian Drive.
Average net yields for Takapuna dropped by 12.5bps to 6.5%. This compares to the average suburban net yield softening by 12bps to reach 6.6%. Net average yields in the suburb are expected to soften further to 6.75% by next year. Suburban average net yields, on the other hand, are forecast to peak at 6.85% during the same time period.
Auckland Southern Corridor
After a 5.4% increase for the March quarter, average net rents for the Southern Corridor stuck around at $293 per sqm for the three months to June. In comparison, overall average suburban net rents jumped by 3.9% to $323 per sqm. Vacancy for the Southern Corridor dipped from 3.8% to 2.7%, while overall suburban vacancy remained at 6.3%.
Average net yield for Southern Corridor, too, softened in the June quarter, down by 12bps to 6.81%. By comparison, the average suburban net yield softened by 12bps to reach 6.6%.
JLL predicted a further softening in net average yields for Southern Corridor to reach a peak of 7.06% by 2024. Suburban average net yields were also predicted to peak at 6.85% over the same period.
Auckland Fringe and Suburban
For the first time since September 2021, average net fringe rents increased this quarter, up 4% to $263 per sqm (+$10 per sqm), driven by the upper end shifting from $330 per sqm to $350 per sqm.
There has been a 4% rise in the average net suburban rents to $323 per sqm (+$13 per sqm) over the quarter. Fringe vacancy slightly dropped, from 11.6% to 11.3%, but overall suburban vacancy held steady at 6.3%.
Average net yields for Auckland fringe and suburban eased by 12.5bps each, with average fringe net yields now at 6.81%, while average suburban net yields now at 6.6%. Yields are forecast to further decline until late-2024, with fringe net yields expected to reach 7.06% and suburban net yields anticipated to peak at 6.85%.
Average gross rents for prime office remained at $640 per sqm while secondary office continued to sit at $391 per sqm.
JLL predicted a $5 per sqm increase in prime rents, and $7 per sqm rise in secondary rents, by the end of the year, with the appetite for seismically strengthened office spaces in the CBD expected to underpin this demand.
Average gross rents in Thorndon held at $438 per sqm during the second quarter and are expected to increase to $448 per sqm by the end of the year. The quarter also saw the vacancy rate in the capital’s CBD increase by a significant 230bps to 6.1%.
The average net yields for both prime and secondary fell this quarter, down by 12bps and 25bps, respectively. Average prime net yields now stand at 6.1%, while average secondary net yields are at 8.13%. By year-end, further softening is expected for prime yields and secondary yields, by 13bps and 12bps, respectively.
Christchurch
Christchurch maintained its average net prime CBD rents of $375 per sqm for the third quarter running, with the figure expected to increase 4% by the end of the year, driven by continued low vacancy and strong demand in the Garden City.
For secondary CBD, average net rents have remained unchanged at $215 per sqm since March 2022. They are expected to slightly increase though by $3 per sqm, during the second half of this year. Despite vacancy remaining unchanged for CBD, CBD prime vacancy saw movement dipped 140bps from 3.5% to 2.1%. In contrast, CBD secondary vacancy grew by 140bps, from 5.1% to 6.5%
Average net prime CBD yields held steady at 6%, while yields across all other grades and precincts eased by 12.5bps. Average net yields for secondary CBD and prime suburban were now at 7% and 7.38%, respectively.
Download and read the New Zealand office market snapshot Q2 2023 here.
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