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The office sector gains momentum

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Workplace attendance expectations are just one factor influencing office workspace decisions as we head into the new year.

The “office-first” movement looks set to gain momentum in 2024 according to Bayleys’ leasing specialists around the country, although hybrid working models will continue to influence the amount, location and specification of office footprint demanded.

Bayleys’ national director commercial leasing, Matt Lamb says in-line with global trends, Auckland-based corporations are starting to clearly define staff attendance expectations. “Market norm is currently a minimum three days per week, but I expect this to increase to four days next year and into 2025.

“Hybrid flexibility, high-quality work environments, proximity to amenities and public transport, and flexibility to up- or down-scale space when workflows change remain key drivers in the office market.

“Retention and attraction of staff, looking at what competitors are doing and ESG considerations are also heavily influencing workspace choices, and this will flow through into the leasing market in 2024.”

Lamb says there’s been steady rental growth for premium office assets, the prime segment has held steady and the divide between prime and secondary properties is becoming far more pronounced, with a significant percentage of vacancy for secondary stock.

“We’re also still witnessing larger corporates right-sizing, leading to several sublease opportunities in the Auckland central market.”

Bayleys Wellington office leasing specialist Luke Frecklington says the capital’s office vacancy levels are expected to rise slightly in 2024, particularly for secondary stock.

“We’re currently looking at around 5% overall office vacancy, with 1.8% vacancy for prime stock.

“Our leasing team is still really busy largely due to tenants that would otherwise not be actively looking to move premises taking the opportunity to look around for practical, modern, seismically-sound and right-sized space for their businesses”

Frecklington says rental rates are stable not expected to go down in 2024.

“We do however expect to see a slight skew in favour of the tenant with landlord incentives kicking in and more flexible lease structures with shorter terms becoming standard.” Although the new government is yet to implement signalled cuts to public service staffing numbers, Frecklington is expecting some scaling back of space – something that was happening to government lease portfolios anyway due to ongoing work from-home dynamics and changing contractor arrangements.

There will be some big spaces to fill in the year ahead with buildings like the former FENZ HQ at 80 The Terrace and the office tower at 96 The Terrace looking for tenants, while some reasonably sizeable gaps are opening up in the Te Aro area as the tech sector scales back on space.

Meanwhile, new-build office stock won’t come onstream until late-2025 and 2026, with the likes of 61 Molesworth Street, and 1 Kate Sheppard Place in the pipeline. Bayleys’ general manager South Island commercial and industrial, William Wallace says leasing activity remains robust as the year winds down with small to medium-sized office businesses the most active in the market.

“The majority of recent leasing deals have been to SMEs and while there are a number of big occupiers actively looking for space, options are thin on the ground for quality vacant space and there’s very limited new stock scheduled to come to the market in the next 12 months.

“I’m not expecting any big surprises in the Christchurch leasing market into 2024 with rental rates expected to hold steady and inventory remaining limited.”

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