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Auckland CBD Office market updates – Q1 2023

See below a summary of the biggest trends in Auckland’s CBD office market, plus an outlook on the next 12 months.

Flight to quality and drift to the waterfront’s west

Occupiers are seeking higher amenity and modern buildings to help draw staff back to the office and to address obsolescence issues with older buildings. Trend is particularly acute for southern CBD tenants due to the loss of amenity during the City Rail Link works. Tenant mandates for sustainable buildings will further cement this trend.

Fewer desks but more collaboration space

Post-pandemic ways of working have changed the nature of demand for space. Hybrid work has often led to occupiers using less space for desks but more space for collaboration.

Interest rate uncertainty

Tenant demand is most prevalent in the 100 to 1,000 sqm size range. Landlords are responding with the delivery of turnkey fitouts, office suites and offering greater flexibility.

Outlook for the next 12 months

Two-step rents

The flight to quality is resulting in low vacancies and rental growth amongst prime properties. Secondary properties are needing higher incentives to maintain face rents amongst weaker demand.

Yields stabilising at higher levels

Rising interest rates have led to a softening of yields across most markets. Signals that inflation and long-term interest rates are peaking means yields are likely to stabilise at higher levels. Lower numbers of sales transactions means there is less evidence available to showcase this trend.

Higher rents needed for new builds to stack up

Reducing yields largely offset the impact of higher construction costs during 2020-2021. Softer yields and persistently high construction costs mean higher rents are needed for new developments to be feasible.

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