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There’s change stirring in the office market

As businesses continue to rejig operational and staffing models, there’s opportunity opening up in some parts of the office sector in the main centres.

The office leasing market remains tight in most parts of the country, although more sublease space is emerging in some areas as businesses either move to new space or right-size their property requirements in today’s environment.

Matt Lamb, Bayleys national director office leasing, says the flight to quality continues in the Auckland office market as corporates seek to entice staff, and there hasn’t been wholesale downsizing of space – yet.

“Broadly, tech’ and telecommunications sectors are downscaling, while big legal and engineering firms want more space.

“There’s potentially more downsizing to come from very large corporates where property decision-making is often tasked offshore and this takes time logistically.

“Big corporates need to identify a property pathway for the future so we work closely with key clients using analytics to try and predict what the cost of moving and fitout will be to the business and the best way to action it.”

Lamb says there is more sublease space coming to the market, mainly fully fitted out large floor plates and particularly in Auckland’s western frame where potentially 30,000sqm of sublease space will come onstream by the end of 2025 as big corporates relocate to better space or consolidate.

“That will create choice for other occupiers and in the secondary market, there’s evidence of some fairly bullish landlord incentives to attract tenants, and a keenness to renew or roll over existing leases to ensure occupation.”

Lamb says the SME market is very active in the turnkey office space, which reflects a desire for quality, and a general reluctance to invest in fitout for more generic space. “SMEs prefer plug and play opportunities where outgoings are fixed.”

In Christchurch, Jesse Paenga, director Bayleys South Island capital markets and corporate leasing, says the leasing market has remained buoyant despite economic headwinds, particularly in the A-Grade CBD market

“Large corporates and established SMEs continue to jostle for prime CBD space, with a number of corporates now looking to make their second move post-earthquake from fringe CBD accommodation to core high profile space.

“We’ve seen upward pressure on CBD rental rates as a result with face rents now being north of $450/sqm, and occupiers needing to act quickly when space does become available.

“Rising construction costs have largely halted new CBD construction and created record low vacancy for existing stock. with developers suggesting face rents would need to be at least $550/sqm to make most new-builds feasible.”

Several large floor plates will be for lease shortly with One NZ relinquishing some space, and the refurbished former IRD building nearing completion with a 2,000sqm floor plate available, although a number of these floors are already in negotiation.

Senior commercial broker Alex White says there’s more positivity in the market now with many international and national tenants keen to cement space in and around the CBD “The shortage of A-grade stock means tenants cannot be as picky and if they hesitate, they could miss out.

“Rents are holding firm in the CBD and the immediate city fringe, but suburban markets have competitively priced space from $180 - $270/sqm.

“Lease-wise, we are seeing annual CPI rent reviews become more common which is not historically typical in the Canterbury commercial market.”

Bayleys Wellington office leasing specialist Luke Frecklington says more subleasing opportunities are appearing in the Wellington office market through a mix of occupiers genuinely downsizing because of changed market conditions, and the impact of hybrid working models on need for space.

“There are tenants actively scoping sublease space where they can effectively move in to offices for the remainder of the existing lease term while they reassess their staff needs and growth projections.

“The signalled public sector staffing cuts are yet to have an impact on office space dynamics in the capital, but we expect to see some movement within the government office portfolio this year.

“There’s generally more choice out there for occupiers at the moment, although the prime A-grade market remains tight and when it does come up for lease, is snapped up quickly.”

Frecklington says occupiers are trying to repurpose existing fitout to reduce upfront capital costs when moving to new space and even if they are installing new fitout, it’s not extravagant.

“We are seeing more incentives from landlords including rent-free periods and capital contributions to fitout.

“Rents haven’t started softening as yet, but in terms of leases structures, fixed annual rent increases and reviews to market at renewal times are pretty standard now, with occupiers wary of CPI-linked reviews.

“Shorter lease terms are more acceptable to landlords in the current market as they’re keen to make a deal work, albeit while not giving away too much.

“Landlords are faced with very high OPEX fuelled by rising insurances, rates and power and this is spurring more net leases as owners seek to pass on some of those outgoings to the tenant.

“OPEX has effectively doubled in the last five years for some prime Lambton Quay office towers and that’s significant.”

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