Office attraction driving occupier activity & opportunity

Premium and the best A-Grade (“Prime”) office space is tight, although transactions are happening

Prime space is where the action has been over the last few years as occupiers relocate to quality space. Our research shows this is a key factor in attracting and retaining great people. The most notable transactions are taking place in new Premium and A-Grade buildings, in a combination of new developments and high quality backfill refurbished space.

Peeking behind the headline though, there are some interesting trends rolling through. For example, telcos leasing new premium grade campus assets but taking significantly smaller overall space.
 
Spark, for example, has committed to approximately 12,000sqm at the new Premium campus space at 50 Albert Street developed by Mansons, leaving behind 24,000sqm at Spark Central, while One NZ has decided to move back across the bridge, leaving behind approximately 18,000sqm at Smales Farm to commit to approximately 12,000sqm at Mansons' new 30 Daldy Street building in Wynyard Quarter. We are also seeing landlords investing in the best quality space and creating good fitouts as incentives. 

Notable examples of sought-after buildings leasing well in the last few years are the ANZ Centre, 88 Shortland Street and the Vero Centre. These assets have all leased up in a timely fashion to a broad range of high calibre tenants, creating buildings with strong professional diversity as companies moving in come from sectors that include legal, financial, insurance, accountancy and technology.
  
At this scale, typically 500sqm – 2,500sqm, lease terms of nine years plus will be required by owners to allow them to spend enough capital to build an occupiers bespoke hard fitout (fitout excluding, IT, AV and furniture).
   

What’s behind this activity?

Driving these businesses have been a mix of factors, from significant growth to mild decreases in overall office space. However, a common thread among all these shifts has been a need to attract staff back to the office, and to improve culture and productivity in inspiring workplaces.
 
Ultimately, this means that occupiers right now are seeking quality Prime space. This active part of the market is, if anything, driving rents upwards as vacancy decreases. 50 Albert Street and 30 Daldy Street are good examples, seeing strong leasing activity and rents, as well as long lease terms.

Opportunities also exist beyond Prime space

Outside of Prime Grade opportunities, there are a number of lessor A-Grade and secondary buildings, where terms being offered by landlords are more attainable. These buildings will typically have lower rents, larger incentives and shorter lease term requirements. Improving economic conditions will likely see more activity in the market, particularly for smaller spaces. 

The last 24 months have been economically challenging, and small to medium sized domestic businesses, which frequently occupy sub-500sqm tendencies and secondary buildings, have been very cautious. They have not been transacting, and those that have done so have either been reducing in size, or focusing on short-term renewals. Assuming the economic sentiment continues to improve, we expect these Small and Medium Enterprise’s (SME) to return to the market quickly in 2025. This is in response to high vacancy levels and competitive deals being offered in secondary spaces by landlords eager to secure tenants and income for their buildings.

Another lens to apply to the market is location. Mid-town is bubbling up once again for occupiers looking ahead to filling space. We are seeing the City Rail Link’s (CRL) Aotea Station start to emerge as hoardings come down and landscaping gets closer to completion. As the train station’s opening date approaches, we get the sense that the market in this location is starting to get traction, and we expect more to happen in mid-town soon. People will have the same quality expectations for buildings here, and the landlords of buildings in this location will have the same responsibilities as owners elsewhere in the CBD: invest in the buildings, create fitouts, and support good occupiers into them.

Speculatively built office suites have become popular with owners of smaller floorplate buildings, along with their target occupiers. The suites being built are typically smaller tenancies of around 200-500sqm.

The advantage of this approach is that there are many more tenants of this size and scale in the market, and for these tenants, it is far easier to commit to a new pre-built fitout where they pay a slight premium on the rent, but avoid having to commit considerable sums to their own bespoke fitout. The suites being built and leased right now will have a lifecycle beyond the first tenant.
 
Whether your business is a large corporate looking to secure a new development or relocate to one of the limited Prime Grade opportunities, or you are an SME considering what’s the best pre-built or cost effective smaller office, one of our knowledgeable leasing specialists will be able to assist you to find your next Head Quarter.