Chapter 3
Real Estate Strategy
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Welcome to the Real Estate Strategy section of the CBRE New Zealand Office Occupier Sentiment Survey 2024. This segment delves into the evolving priorities of office occupiers, highlighting the increasing importance of proximity to public transport, seismic performance, and sustainability in office relocations.
Discover how businesses are navigating office space consolidation, coworking spaces, and the pursuit of office building sustainability to enhance workplace efficiency and employee satisfaction.
Explore the strategic shifts towards securing office premises with superior seismic performance and adherence to the New Building Standard (NBS), ensuring a resilient and sustainable future for New Zealand's office environments.
Discover how businesses are navigating office space consolidation, coworking spaces, and the pursuit of office building sustainability to enhance workplace efficiency and employee satisfaction.
Explore the strategic shifts towards securing office premises with superior seismic performance and adherence to the New Building Standard (NBS), ensuring a resilient and sustainable future for New Zealand's office environments.
Importance of proximity to public transport is reinforced
Occupiers prioritise both location and building-specific office premises attributes.
Last year’s survey results were notable for the very high importance of public transport proximity, especially in Auckland and Wellington, with correspondingly low importance being attached to arterial road proximity by office occupiers. Ease of public transport access remains a key location criteria in this year’s survey. It was rated as a high priority more than any of the other 15 attributes that respondents considered.
The broader aspect of geographic location, focused on clustering with clients, peers and support services, and proximity to a wide range of urban amenity is also of crucial importance. The streetscape of the access environment is the other location-specific characteristic that features in occupiers’ top ten most important attributes.
While location is crucial, seven of the top ten priority attributes are building-specific with the functionality of the floor configuration being the most important.
Last year’s survey results were notable for the very high importance of public transport proximity, especially in Auckland and Wellington, with correspondingly low importance being attached to arterial road proximity by office occupiers. Ease of public transport access remains a key location criteria in this year’s survey. It was rated as a high priority more than any of the other 15 attributes that respondents considered.
The broader aspect of geographic location, focused on clustering with clients, peers and support services, and proximity to a wide range of urban amenity is also of crucial importance. The streetscape of the access environment is the other location-specific characteristic that features in occupiers’ top ten most important attributes.
While location is crucial, seven of the top ten priority attributes are building-specific with the functionality of the floor configuration being the most important.
Building and location priorities - Not all are universally important
The general trends relating to location and building features mask notable differences in the importance of certain amenities across the major cities. For instance, while public transport proximity is a high priority in Wellington and Auckland, it is much less important in Christchurch. Seismic performance is the clear number one priority in Wellington and equal second for Christchurch but doesn’t feature in the top five in Auckland. However, it is still of importance with 61% of Auckland occupiers considering it at least as a priority.
There are also clear similarities across the three cities which highlight attributes which are of fundamental importance to occupiers. Floor configuration is one of these, with circa 80% of occupiers rating it as a priority to high priority. Equally – location, relativity to clients, peers, support services and urban amenity is also of universally high importance.
There are also clear similarities across the three cities which highlight attributes which are of fundamental importance to occupiers. Floor configuration is one of these, with circa 80% of occupiers rating it as a priority to high priority. Equally – location, relativity to clients, peers, support services and urban amenity is also of universally high importance.
Relocations are on the horizon
A variety of factors are driving the relocation strategies of businesses. The most common reason is the aspiration to enhance the quality of their workspace, a goal pursued or planned by approximately 15% of office occupiers. Other strategies aim to secure office spaces with superior seismic or sustainability performance. The sixth most popular strategy is to relocate for improved public amenities, emphasizing the significance of geographical location and proximity to public transport.
In total, 39% of office tenants are either pursuing or considering relocation. This contrasts with the 12% of respondents who prefer to stay put and are looking to renegotiate their leases.
Over a fifth of tenants are choosing a wait-and-see approach. Some of these businesses have recently moved offices and therefore do not have an active strategy. However, there are a few tenants who appear to be still evaluating their real estate strategy in response to post-pandemic work styles before taking the next step.
While coworking options are not a major feature in real estate strategies, their importance has grown. Utilising the flexibility offered by coworking spaces as part of a broader suite of workplace solutions or leaving traditional office spaces in favour of coworking spaces, is being pursued or planned by 4.5% of respondents, up from 2.1% last year.
In total, 39% of office tenants are either pursuing or considering relocation. This contrasts with the 12% of respondents who prefer to stay put and are looking to renegotiate their leases.
Over a fifth of tenants are choosing a wait-and-see approach. Some of these businesses have recently moved offices and therefore do not have an active strategy. However, there are a few tenants who appear to be still evaluating their real estate strategy in response to post-pandemic work styles before taking the next step.
While coworking options are not a major feature in real estate strategies, their importance has grown. Utilising the flexibility offered by coworking spaces as part of a broader suite of workplace solutions or leaving traditional office spaces in favour of coworking spaces, is being pursued or planned by 4.5% of respondents, up from 2.1% last year.
Consolidation pressure is easing on office space footprints
Among the various real estate strategies being considered, 9.5% of occupiers are actively planning or pursuing consolidation. This is in contrast to the 3.4% who are planning to lease additional space for expansion.
When we look more specifically into the potential changes to office footprint size, we see a shift from last year’s trends. Relocation strategies are now less about reducing space. Only 29% of respondents are planning to decrease their footprint, a significant decrease from 47% last year. This change is reflected in the increase in respondents who are not planning any change to their footprint (45%) and those planning to expand (26%).
Despite the current soft economic conditions posing a short-term challenge to positive absorption, our survey results show resilience in leasing activity, indicating a likelihood of a rebound in demand as the economy improves.
When we look more specifically into the potential changes to office footprint size, we see a shift from last year’s trends. Relocation strategies are now less about reducing space. Only 29% of respondents are planning to decrease their footprint, a significant decrease from 47% last year. This change is reflected in the increase in respondents who are not planning any change to their footprint (45%) and those planning to expand (26%).
Despite the current soft economic conditions posing a short-term challenge to positive absorption, our survey results show resilience in leasing activity, indicating a likelihood of a rebound in demand as the economy improves.
A practical approach being taken when it comes to sustainability
Only 18% of survey respondents indicate that sustainability is not a focus in their real estate strategy. However, the extent of green measures being sought after is at the lower end of the spectrum, with occupiers exhibiting a considerable degree of cost sensitivity.
Nearly 50% of survey respondents (excluding those for whom sustainability is not a focus) are not prepared to pay a rent premium or would only pay a premium proportionate with a 4-star green rating (5 to 10% above a non-rated building). The relatively low willingness to pay for high levels of sustainability is also reflected in this attribute ranking relatively low in occupiers’ building and location priorities, ranking 9th out of 16 attributes. This may reflect current economic circumstances, the general squeeze of profitability and elevated costs of doing business.
Larger corporate and government occupier requirements are less coloured by shorter-term considerations and more clearly aligned with higher levels of building sustainability credentials.
While many occupiers are cost-conscious when adopting sustainability measures, it is important to also focus on the fact that nearly a quarter of respondents seek 5 and 6-star green-rated spaces and are willing to pay up to 30% rent premium for these. In Auckland, this proportion rises to nearly a third of respondents. This demand base is well over the 12% of current Auckland office stock that is 5 or 6-star green rated.
Nearly 50% of survey respondents (excluding those for whom sustainability is not a focus) are not prepared to pay a rent premium or would only pay a premium proportionate with a 4-star green rating (5 to 10% above a non-rated building). The relatively low willingness to pay for high levels of sustainability is also reflected in this attribute ranking relatively low in occupiers’ building and location priorities, ranking 9th out of 16 attributes. This may reflect current economic circumstances, the general squeeze of profitability and elevated costs of doing business.
Larger corporate and government occupier requirements are less coloured by shorter-term considerations and more clearly aligned with higher levels of building sustainability credentials.
While many occupiers are cost-conscious when adopting sustainability measures, it is important to also focus on the fact that nearly a quarter of respondents seek 5 and 6-star green-rated spaces and are willing to pay up to 30% rent premium for these. In Auckland, this proportion rises to nearly a third of respondents. This demand base is well over the 12% of current Auckland office stock that is 5 or 6-star green rated.
Demand for strong seismic performance is universal
The type of buildings, their vulnerability to earthquakes, and the likelihood of such events influence the specific needs of occupants regarding seismic performance. Generally, the demand for high seismic performance is universal. Among the major cities, occupants in Auckland have the least demanding seismic requirements. However, even in Auckland, half of the respondents expressed a preference for buildings with a New Building Standard (NBS) rating of at least 80%.
Considering Christchurch’s reconstruction has resulted in numerous buildings with an NBS rating of 100% or more, and the ample availability of such spaces, it’s unsurprising that it has the highest demand for 100% NBS-rated buildings. Occupants in Wellington, following the earthquakes in 2013 and 2016, are shifting from a minimum requirement of 67-70% NBS towards 80%. Over 70% of Wellington survey respondents require a building with at least an 80% NBS rating. Interestingly, 4% (or 2) of Wellington-based respondents indicated that seismic performance isn’t a factor in their choice of office premises. This is somewhat surprising given the context.
Considering Christchurch’s reconstruction has resulted in numerous buildings with an NBS rating of 100% or more, and the ample availability of such spaces, it’s unsurprising that it has the highest demand for 100% NBS-rated buildings. Occupants in Wellington, following the earthquakes in 2013 and 2016, are shifting from a minimum requirement of 67-70% NBS towards 80%. Over 70% of Wellington survey respondents require a building with at least an 80% NBS rating. Interestingly, 4% (or 2) of Wellington-based respondents indicated that seismic performance isn’t a factor in their choice of office premises. This is somewhat surprising given the context.