Archive | CBD

JLL puts case for new tower

Published 10 May 2006

Jones Lang LaSalle’s new research manager, Kim Bannon, put the case for a new office tower in Auckland’s cbd last Thursday, at the consultancy’s executive breakfast (which, through a mishap, I was unable to attend).

In the JLL white paper, Ms Bannon told about 100 clients:

“We believe the time is right for a developer/landlord to consider launching a new premium A grade office development.

“Current premium A grader rents are between $350-480/m² net. For a new tower block to be viable, an average floor rental of $420-540/m² is required (at completion in mid-2009).

“To achieve this rent by mid-2009, average rental growth of 5%/year is required. In comparison, rental growth over the last 3 years has averaged 6%.

“Demand for office space is forecast to continue to grow, as it has done historically since 1992. The last 4 years saw the absorption of 107,000m². We are forecasting 80-110,000m² in the next 4 years.

“143,000m² are forecast to be developed & become available in the next 4 years.

“Based on this forecast supply & demand, average vacancy rates over the next 4 years are estimated to be 10-11%. This compares favourably to average vacancy rates of 12% in the last 4 years, an environment which saw rental growth in excess of what is required to achieve an average annual rental of $480/m² net mid-2009.”

I’ll have more on this topic in Friday’s newsletter.

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Attribution: JLL white paper, story written by Bob Dey for this website.

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Trading up tightens prime office market

Published 25 September 2005

Auckland cbd tenants looking for quality space continue to have very limited options, particularly those looking for larger or contiguous floorplates, Colliers International says in its September report on the Auckland office market.

“This disparity between tenant inquiry & leasing options has supported solid rental growth,” said Colliers’ research & corporate service director, Alan McMahon.

He said the sale of the well known, though virtually vacant, Feltex House office building on the Symonds St ridge showed strong underlying confidence in the investment market.

Feltex House was sold for $7.6 million to an Auckland-based development company with plans to convert it into a hotel.

Mr McMahon said leasing transactions in August were mostly relocations or upgrades. Leighton Contractors leased the 700m² 13th floor of the ANZ Centre on Albert St and existing tenant AIG increased its leased space.

On a structural change in the office market, Mr McMahon said the Auckland cbd was in the early stages of a construction cycle which, in time, would substantially increase the amount of prime office space in the market. “Despite this increase, tenant trading up from secondary to prime quality accommodation has caused the prime vacancy rate to fall from 14.2% to 4.4% over the past 5 years. At the same time, the overall vacancy level has only decreased from 12.2% to 10.7%.”

If you want to comment on this story, write to the BD Central Discussion forum or send an email to [email protected].

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Auckland office rents rise across the board, says JLL

Published: 15 June 2005

Indicative face rents for landmark office space have increased 7% in a year, Jones Lang LaSalle’s research division said today.

Falling vacancy combined with a strong domestic economy through 2003-04 brought more pressure on rents, and the average indicative rents for Auckland’s highest standard of quality office accommodation now sat around the $270/m² mark.

But the squeeze on space has meant that at the top of the value range for the next tier down, which Jones Lang LaSalle categorises as prime, rents are actually higher than the landmark average, breaking through the $300/m² threshold.

Jones Lang LaSalle’s director of leasing, Todd Lauchlan, said the largest increase in Auckland’s cbd was in face rents for prime office space, up 10% in 12 months & 20% since December 2002.

Mr Lauchlan said the increase in face rents (the contract rent struck at the time of agreement) hid further increases in net effective rents (total rent, including incentives): “Although contract rentals have shown a solid 10% increase over the last 12 months, the significant reduction in leasing incentives in the landmark market has meant the effective rentals over the same period have grown closer to 15%.

“Shorter rent-free periods & lower levels of fitout incentive have caused net effective rents to rise across both the prime & landmark markets, hyperbolising any real rental costs, especially for sitting tenants,” research manager Justin Kean said.

He said secondary rents had also risen across the range, although not to the same extent as landmark & prime rents. The upper end of the value range for secondary rents was close to breaking the $200/m² threshold, sitting at $190/m².

Mr Kean said there had been substantial movement across the suburban new-build rental range. Increasing land costs & high construction costs have forced the lower end of the value spectrum upwards. This pressure and rising costs of construction were likely to cause suburban new-build rents to increase further this year.

Mr Kean said there was some downside risk for secondary rents, given the increased levels of vacancy likely to be created by new-build developments such as Air New Zealand, Vodafone, Lumley Centre & the new Mason Development in Quay Park. “In addition to this, we expect a slowdown in the domestic economy, which will affect tenant demand.”

If you want to comment on this story, write to the BD Central Discussion forum or send an email to [email protected].

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CBD vacancy down to 10.4%, education sector stabilises

Published: 22 January 2005

Auckland cbd office vacancy is back at an historically low level – 10.4% (click first graph to enlarge) – after climbing late last year, Bayleys Research analyst Cameron Melhuish says in Bayleys & Telfer Young’s latest cbd office report.

Mr Melhuish said that for the first time in several years the education sector couldn’t take the credit. That sector was largely to blame for the increased vacancy last year, but Mr Melhuish said it had stabilised in 2004.

The credit this time goes to plain old business leasing, and Mr Melhuish expects that to continue: “Enquiry for quality office space remains strong and this is likely to maintain healthy market conditions within the Auckland cbd’s prime office sector.

“Vacancy is expected to remain below 10% in light of the fact that new projects will largely be fully tenanted soon after completion. Bayleys Research is aware of further developments which have been presented to the market and leasing negotiations for space in these new projects is well underway.”

Mr Melhuish said the cbd office market also continued to attract strong investor interest: “A number of significant commercial office sales have recently been completed, with firming yields reflecting the strength of investor competition.”

But he did raise a question on the capacity of the office sector to take up space vacated by tenants moving into new & better premises: “There are 3 major developments currently in progress, catering for existing cbd businesses upgrading to superior-quality premises. While this is yet another indicator of the market’s strength, major tenant movements will mean large areas of office space are left behind vacant. If there is a shortfall in tenants to absorb this secondary space, then the Auckland cbd will face a vacancy increase.”

CBD vacancy fell by 1.5 percentage points in 2004, and from 11% in July to 10.4% at year end. “This indicates the leasing market has been strong enough to overcome those influences which caused the vacancy to lift in 2003 – English language school closures and space left behind untenanted by companies upgrading into superior quality office premises.

“Significantly, the education sector has proved much more resilient than was expected after the downturn in the 2nd half of 2003. Government assistance, both on & off shore, was fundamental in stabilising this sector of the market,” Mr Melhuish said.

Businesses upgrading strengthens prime sector

Mr Melhuish said the prime market (premium & grade A) continued to perform well, bolstered by strong demand from commercial tenants looking for quality office space.

“For the most part, leasing interest came from existing cbd office tenants who want to upgrade their premises to enhance efficiencies & image as well as retain staff through providing a more attractive working environment.

“Within the cbd’s existing prime office buildings, there is no space of any significance available for companies to move into. This has contributed to the successful pre-leasing of new office projects which have offered contiguous levels & large floorplates. Although not part of our current survey, the precommitment from businesses to some 40,000m² of prime office space during 2004 is indicative of the market’s strength. This will mean major tenant movements during 2005-06.”

Update on new developments

Manson Developments Ltd’s project on the Northern Roller Mill site, Lumley Group will move from City Rd down to the last space in this building, between Shortland & Fort Sts, and will take naming rights. The 18-level tower will be called the Lumley Centre. It’s now fully leased, with law firms & existing cbd tenants Simpson Grierson and Minter Ellison Rudd Watts taking the balance of the building. The tower, which will include 18,000m² of prime office space, is expected to be completed around mid-2005.
Air New Zealand, currently accommodated in Quay Tower & Downtown House, has committed to a new building on the corner of Fanshawe & Beaumont Sts, which Trans Tasman Properties Ltd plans to complete in April 2006. The airline will move out of 18,000m² into a net 15,585m².
Vodafone will combine its Pitt St & College Hill premises into a new building by Newcrest Group Ltd on the corner of Fanshawe & Halsey Sts. Completion of the 14,000m² building is expected in April.

Secondary vacancy down but challenges ahead

Mr Melhuish said language school closures & loss of tenants to the prime sector saw the secondary office sector’s vacancy rate climb by almost 3 percentage points in the 2nd half of 2003.

In addition, the conversion of office space to apartment accommodation, which has played an important role in improving office vacancy through the removal of vacant secondary office space, slowed with the market’s preference swinging to new purpose-built complexes. “Despite these factors, the sector’s vacancy rate is again closing in on the 10% mark,” Mr Melhuish said.

“The preference of businesses for quality office space and the levelling off of the education sector’s growth have prompted secondary office landlords to look for a competitive leasing advantage through renovation.

“This has proved to be a well thought initiative, rewarded with the successful leasing to both existing cbd tenants as well as companies from outside the inner city. In some instances, the extent of the renovation works has earned the building a promotion from secondary to prime status.

“By way of example, significant investment was put into the refurbishment of the Q&V Building, formerly the ANZ Bank Building on the corner of Queen & Victoria Sts. The standard of this refurbishment has been rewarded with strong leasing commitment.

“Apart from the ANZ Bank tenancy, the building was vacant at the time of its sale in mid-2002. It is now close to being fully leased. Another example is a Kingston St building formerly known as the Telecom Tower.

“The building, which totals some 6000m², had become vacant on the departure of Telecom (Xtra) in late 2002. However, following major renovation works, the building is nearing full occupation again, attracting companies from within & outside the cbd – including Telecom, which has retenanted 3 levels.”

The relocations mentioned above will empty 45,000m² of secondary space: “While Bayleys Research is aware that leasing negotiations are well down the track for some of this space, a large proportion is still unaccounted for. Adding to this is the fact that evidence to date suggests new projects, which have been presented to the market over recent months, may further exacerbate the situation.”

Education sector holds its ground

Statistics NZ said foreign student enrolments at New Zealand English language schools totalled 50,594 for the March 2004 year – down 20,909 (or 29%) from the previous year.

Enrolment in the Auckland cbd fell 7% to 21,787 and some schools were closed.  Mr Melhuish said language school occupancy of cbd office space was down 7700m², or 10%, in March 2004 from the peak of just over 70,000m² in July 2003.

“Counterbalancing this fall was the growth by universities, training schools & short-course providers. This has meant that the total cbd office space occupied by the education sector as a whole has remained largely unchanged.”

Earlier stories:

19 November 2004: Roller Mill to become Lumley Tower

16 November 2004: Manson secures 3rd large tenant for Roller Mills

5 August 2004: Deutsche buys Mansons’ NRM Tower at 8%

30 July 2004: Trans Tasman secures Air NZ for Fanshawe St business park

18 July 2004: CBD office vacancy down to 11.1%

21 March 2004: CBD vacancy 11.95%, but prime below 7%


If you want to comment on this story, write to the BD Central Discussion forum or send an email to [email protected].

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Office sector can’t rely on education to fill vacancies any more

The education sector underpinned the Auckland cbd office market until early this year, but Bayleys Research said in its latest commercial report vacancies arising from relocation would have to be filled by the office market itself.

Bayleys said in its 2nd half 2004 report overall office vacancy in the cbd fell from 11.95% in January to 11.1% in July.

At the end of 2003 there was speculation that the market was about to turn down as the education sector – which had become the biggest user of office space – faltered. “While there have been some English language school closures in the first half of 2004, the balance of the market has remained resilient. Strong leasing activity has seen the overall vacancy fall in the face of a number of market challenges,” Bayleys said.

But now comes the hard part: A number of new office developments are under way, with more planned. Precommitment has come mostly from existing cbd tenants, potentially leaving vacant space when they relocate.

Bayleys said the education sector balanced out those vacancies, but this sector was now static.

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Office users occupy 5% less space

Office users occupy 5% less space

Use of office space/person has fallen 5% since 2000 and 15% since 1998, Colliers International director of research & corporate services Alan McMahon said in his 3rd research report on this subject.

The 1998 and 2000 research papers generated reliable data on workplace costs & densities. This survey updates existing data, incorporating new rents, operating expenses, rates & changes in personnel, for example, and adds data on a substantial number of new leases starting in the period 2001-03, Mr McMahon said.

Market conditions

The office leasing market has moved ahead strongly since the last of these reports, in 2000. Overall vacancy has been steady, but has been dropping in the prime category despite some substantial new buildings coming on stream, such as the PricewaterhouseCoopers Tower on the waterfront. At the top end of the market incentives have been reducing, and there has been some firming of face, or contract rents.

The secondary market has been dominated by the education sector, particularly language schools, but these users have not been included in the survey. They may be occupiers of office space, but they are not orthodox office users and inclusion of results from property used as classrooms would do little to aid the clarity of the findings.

Key findings

The substantial reduction recorded in space/person from 20.96m² to 18.68m² between 1998 and 2000 has been continued. The overall space/person of 17.72m² is a further reduction of more than 5% from the 2000 figure, and more than 15% from the 1998 level.

Costs/m² have increased nearly 15% from the 2000 level, to $346/m² overall. This is the total occupancy cost defined as operating expenses plus rates plus rental. The 2004 figure, however, remains below the 1998 level.

Cost/person has increased as a result of increasing costs/m², partly as a consequence of higher quality buildings being completed & included in the results. The rise, however, is less than 9%, because of the higher densities being recorded. The average property cost/person in the offices surveyed was $6139/year.

A dwindling number of people still cling to their private office. 23% were in that lucky position in 1998, which reduced to 16% in 2000 and is now down to 10%. In our experience larger corporates considering an office move plan for between 0-5% of private offices.

Results by industry

In common with the early surveys, firms providing legal services occupied more space at a greater cost/person than any other category. However, they are using space more efficiently, reducing from 29.4m² in 2000 to 26.3m²/person in this survey.

Accountancy companies, which in earlier surveys were shown to be efficient users of space, are even more efficient now, using an average of 14.4m²/person.

Although the participants in this survey tend to occupy relatively expensive buildings, their efficient occupational densities have reduced annual costs/person to $5499.

Legal services, financial services & the “Other” category occupy space at considerably higher averages than the survey’s overall average of 17.72m²/person.

This is in marked contrast to the perhaps more technically sophisticated IT, communications & accounting industries, which manage to occupy space more efficiently.

The accounting industry, in particular, continues to use techniques such as “hot desking,” whereby each member of staff is not necessarily allocated their own workstation. This is particularly achievable in audit departments, where many of the staff are out of the office most of the time.

Results by building grade

The chart shows that A grade buildings on average cost 20% more/person than B grade buildings, despite being occupied around 5% more densely, or efficiently. The reason, of course, is the cost/m², which is 27% higher in A grade buildings compared to the B grade buildings in the survey.

C grade buildings are occupied at a relatively high density of 20.5m²/person. This, in our view, is the result of 2 factors: lower rentals limit the incentive to occupy buildings more efficiently and, more importantly, the building services & amenities in C grade buildings limit the densities that can be achieved.

In an A grade property the landlord may be motivated to assist with a new fitout – the extra rent may make it an attractive proposition. In a C grade office this argument is likely to be less persuasive and the tenant may settle for the existing older fitout.

Additionally, lower-quality buildings tend to have smaller less flexible floorplates, making it more difficult to create efficient occupancy arrangements.

Typically, the biggest complaints from occupiers of multi-storey office properties are about lifts & air-conditioning. These niggles mostly arise when there are too many people trying to fit into a building never designed for such high numbers.

It follows that moving to a higher-grade property will not necessarily increase the property costs for a business. This is particularly so in the new generation of buildings, which are designed to accommodate efficient workstation layouts and have carefully calculated core-to-window depth & configuration, so the number of people who can be accommodated comfortably is optimised.

What do people like?

In addition to questions about costs & space, the survey covered work settings and asked what was important to work users.

We have seen that the proportion with a private office is reducing, and now sits at 10%. We expect this to keep falling.

What people actually want may be different to what they get. The desirability of work settings is measured on a scale of 1-5 and illustrates that most respondents have adjusted to current practice, and favour an open-plan office. There is continued resistance to “hotelling” and “hot-desking,” as people want their own space & somewhere to keep their personal items.

How does Auckland compare to international benchmarks?

Reliable data is hard to summarise. In every market there are examples across the spectrum, some from around 5m²/person in China to about 40m²/person in Scandinavia, but neither of these is typical in their own markets.

The chart below is a guide used by a global multinational corporation in setting space standards around the world. The comparison between the space allocated to a regional managing director and to an average employee is most stark in Japan, where 46m² is allocated to the regional manager/director but only 10m² to employees.

What is important to office users?

Security, natural lighting, quality of building services & parking top the list of desirable features.

Typically these responses were elicited from a senior manager.

What is churn?

Churn is the movement of people and all the associated items that have to be shifted with them – IT, furniture, and so on. Traditionally companies have tried to minimise the cost of churn, but this is too simplistic. By never moving anybody anywhere you can keep churn costs to zero, which is hardly the point.

Some organisations choose to move teams around every 6 months to stimulate communication & energy in the expectation that the cost of that churn will be exceeded by the increase in productivity.

The focus for an organisation, we believe, should be in limiting the cost, including staff down time, of each move by the use of efficient furniture, IT system & flexible office layouts, rather than by minimising the number of moves.

How should your office be organised to maximise productivity?

Colliers International, as part of its workplace practice research, reviewed existing literature and conducted interviews with a number of experts in Australia, New Zealand & the UK. Onto these we have overlaid our experience through various tenant surveys & management interviews carried out as part of our consultancy or exclusive brokerage assignments.

In essence, what people like is personal control over their immediate area, flexibility, adaptability & usability of that area, rapid remedial action when things go wrong, and a workstation, desk or office which satisfies their personal self-esteem.

Telltale symptoms of problem layouts include:

circulation routes cutting through & dividing work groups
people sitting at desks which are close to circulation routes or other sources of noise & distraction
people sitting with their backs to circulation routes and feeling unnerved by people approaching from behind
situations where people cannot escape from intrusions, particularly of nearby teams of people doing a completely different job
poor or non-existent occupant controls over cooling, ventilation, glare & noise, and slow management response to complaints about these issues
poor telephone design & ergonomics, especially people not being able to tell which handset is ringing.

Sometimes businesses seem to be unclear about what they are trying to achieve by restructuring the workplace, and don’t understand all of the factors at work. Colliers International has carried out a number of large staff surveys, which we consider an essential tool to designing a workplace that staff will be comfortable with.

Occupants of a building who perceive they are comfortable tend to say in surveys that they are healthy and productive at work. Health, comfort & productivity are often surrogates for one another, and it is a foolhardy employer who designs an office without consulting the people who are going to work in it.

Meetings – good or bad?

One study concluded that unintended meetings were more valuable than planned ones, took a third as much time & occurred 4 times as frequently as scheduled meetings. Productivity can therefore be boosted by providing facilities for unintended meetings, such as wider corridors, and central coffee & lunch areas.

However, underlining the point that management is more important than the environment, a study in a US office observed that “staff shuffle uneasily down foliage-lined avenues unsure whether sitting & chatting to a colleague over a cappuccino on a designer bench will be interpreted as slacking or having an informal meeting.”

How much more productive is a good building than a bad building?

Depends who you ask. Some studies suggest there can be a 20% lift in productivity simply through improved indoor air quality. Other studies show a 25% productivity difference exists between people who say they are uncomfortable and people who say they are comfortable. In Britain, studies suggest the difference between the best & the worst buildings in terms of productivity can be up to 30%.

Colliers International can help you design a staff survey, or interview key people, in a structured fashion that gathers the data required to make reasoned decisions, which are likely to optimise staff comfort & productivity within the workplace.

Does your workplace measure up?

Thanks to all the participants in the survey. They will be receiving an analysis of their situation compared to the overall results.

And you can too! Colliers offers a complimentary and confidential assessment and lease review to central Auckland companies employing more than 10 people. This helps us by adding to the database in preparation for our next research update. Please call Alan McMahon, director of research & corporate services.

Website: Colliers International

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CBD vacancy 11.95%, but prime below 7%

The overall vacancy rate in the central business district hit 11.95% in January, up from 10.1% 6 months earlier & 9.9% a year earlier, according to the January survey by Bayleys Research and Telfer Young Research, released this week.

The overall vacancy rate of what Bayleys calls metropolitan Auckland (the cbd, city fringe, southern corridor & North Shore) has risen from 10.7% a year ago to just over 11%

The cbd covers 57% of the metropolitan area’s 1.97 million m² of net lettable area.

The cbd, and education

The departure of accountancy firm KPMG from its Princes St headquarters to a new building on Viaduct Harbour was worth about 0.65% of the overall cbd vacancy rate.

Bayleys Research said it knew at the time of the survey that Fonterra had decided to lease the Princes St building to centralise its operations from around the country, but in the survey the building was marked as vacant.

Prime vacancy fell below 7% after the new KPMG building opened fully tenanted, and space in the PricewaterhouseCoopers Tower & Vero Centre was absorbed.

The education sector had held secondary office vacancy down, but the closure of some businesses & fall in foreign student numbers meant secondary vacancy rose.

The Bayleys/Telfer Young research showed space occupied by the education sector fell by 5200m², or 3.4%, in the second half of 2003 after absorbing 7500m² in the first half of 2003 & 30,000m² in 2002.

Half of the cbd’s education outlets are in the midtown (31%) & Symonds St (20%) precincts. The rest are spread through Downtown (15%) & Britomart (2%), Anzac Ave (14%), Upper Queen St & periphery (13%) and the western periphery (5%).

New Viaduct building fully committed

The Viaduct precinct has grown to just over 41,000m² of lowrise office space, of which 30,000m² has been built since 2000.

Accountancy firm KPMG & law firm Kensington Swan (which was briefly called KPMG Law) have taken all 8000m² in their new building on Viaduct Harbour Ave.

The precinct’s vacancy rate was 7.8% in January, according to the Bayleys/Telfer Young research.

Vodafone’s 14,000m² premises next door should be completed by September and developer Newcrest Holdings Ltd (Tim Dromgool & Allan Fraser) have another 6-storey building containing 10,500m² of net lettable area (plus basement parking) on the drawing board for the adjoining site.

The outlook

Bayleys Research, headed by Gerald Rundle, said significant amounts of new space had hit the market over the past 3 years, but vacancy rates generally were healthy. However, more construction is under way.

Vacancy on the North Shore fell from nearly 11% last year to 7%, and vacancy in the southern corridor fell from nearly 20% to 7%. The city fringe has been stable with vacancy around 10%. Manukau (including retail) vacancy is about 6%.

Vodafone will centralise from Pitt & Symonds Sts and College Hill at the end of this year.

Manson Developments Ltd (Ted Manson) should have its Northern Roller Mill development complete by early 2005. Law firm Simpson Grierson will move from its Finance Centre building on Albert St into 7695m² of the 18,000m² being built by Manson.

Bayleys Research said the latest survey indicated the education sector might no longer hold the key to absorption of secondary office space, but it was too soon to accurately assess the true condition of the sector.

The sector would need better marketing to counteract competition for foreign students, it said.

Website: Bayleys


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