Tenant moves free up Dunedin office space as industrial stays tight

Global commercial property company CBRE’s latest Dunedin vacancy survey shows tenant moves continuing to create vacant space in the office market, while industrial property remains in short supply.

The survey, which provides a comprehensive view of property occupation trends across the city, measures the changing amounts of vacant space compared with last year across all office and industrial properties in Dunedin.

The results show a jump in the amount of vacant space in prime offices (top-quality, new or refurbished buildings) as major tenants including ACC and Otago Regional Council settle into new office space after a period of reshuffling.

Prime office vacancy has risen to 5.8% from 1.7%, primarily due to ACC moving out of its former offices in Otago House on Moray Place, leaving behind four and a half floors of vacant space which is yet to be filled.

With three new CBD office buildings having opened over the past year, around 20,500 sqm of new prime office space has entered the Dunedin market, said Darren Bezett, valuation director at CBRE Dunedin.

“As office tenants have moved into new buildings, they have left behind a significant amount of older space which is proving difficult to re-lease given current tenant preferences for new, high-grade offices.” Vacancy is higher in lower-quality, secondary-grade office space, with nearly 11% of space in this subsector vacant - a similar level to last year.

Change of use projects to convert some older office buildings to other uses is expected to remove some of the vacant secondary-grade office space from the market. Philip Laing House is the most significant example, with Distinction Hotels having purchased the 6,000 sqm office building this year for conversion into a hotel.

“Conversion of older office buildings into apartments and hotels is a trend we have seen in previous cycles and we are now seeing it re-emerge this cycle,” Bezett said. “Repurposing redundant office buildings into alternative uses is a sensible solution to help reduce oversupply and better align CBD building stock with demand.”

The CBRE survey, which also covers industrial property, shows vacancy in this sector remains low at 2.7%, slightly down from 2.9% last year, said Jorge Chang Urrea, research manager at CBRE. "Tenants have taken up some secondary-grade buildings in Mosgiel that were sitting empty, reducing the secondary-grade vacancy rate slightly, to 3.1%. The prime end of the industrial market is still extremely tight, with just 0.6% of property vacant." Industrial property activity in the Taieri is heading in a positive direction, despite a quiet market overall, Bezett said.

"A couple of new industrial buildings are under way in the Taieri, and the proposed Southern Link inland port in Mosgiel is creating further momentum in the area." Dynes Transport Group and Port Otago plan to develop the Southern Link facility on a 40ha site, which would use rail to move containers between Port Chalmers and Mosgiel, taking more than 19,000 truck movements a year off local roads.

In central Dunedin, the sale of Chalmers Properties freehold interests to long-term ground lessees has continued, with a handful of industrial sites of between 4,000 sqm and 1ha freeholded to their occupiers over the past year.

"This is a positive step towards opening up the potential for future redevelopment of central-city industrial sites. With more land under occupiers’ control, we may see a move towards a gradual modernisation of the industrial precincts across the Southern Endowment and behind the railway station,” he said.