How empty are our offices now so many are working from home?

Comforting news: New Zealand offices are the most-occupied in Australasia, despite so many of us working from home.

Or to put it another way, our commercial space has the lowest ghost-tower rate of vacancies in Australasia.

Not so many people are at their desks as Omicron sweeps through the country, but tenants are still paying rent, buoying occupancy rates across our three major cities, particularly for the newest, most upmarket offices that have the highest specs such as fast lifts and energy-saving measures.

Auckland, Wellington and Christchurch offices scored at the bottom of an Australian office vacancy chart from a JLL research office investment review, meaning our offices are the most-rented in this part of the world.

But spare a thought for Brisbane’s tower owners: 15.7 per cent of their prime commercial space is vacant.

Owners of second-grade Perth office space are worst off: 26.8 per cent of their floor space is vacant, waiting for rent-paying occupants.

Auckland prime CBD office vacancies are 8.5 per cent and secondary offices are 14.6 per cent, Wellington’s are the most occupied at 1.1 per cent and 4.3 per cent vacant and Christchurch is only 3.2 and 6 per cent vacant.

Sydney prime offices are 11.4 per cent and 14.4 per cent vacant, Melbourne 15.3 per cent and 14.4 per cent, Perth 14 per cent and 26.8 per cent, Adelaide 11.9 per cent and 18 per cent and Canberra 2.8 per cent and 11.1 per cent vacant.

JLL warned Perth’s blight could spread: vacancies could be replicated across other office markets. Older-style blocks on which landlords haven’t spent much will become more empty, rents will drop and ultimately put downward pressure on valuations.

The report gave comfort to those worried about cranes on skylines and whether new buildings will be leased.

“Australia and New Zealand office sector development activity is typically pre-commitment led,” the report said. “Across the Australian office markets, approximately 1.46m sq m is under construction, equating to 5.2 per cent of total stock,” the report said.

The development pipeline, measured as projects under construction, is starting to increase as tenant commitments stimulate activity, JLL said.

New Zealand is recording a higher level of development activity: 359,600sq m or 9.4 per cent of total stock is still being developed.

New work is strongest in the Wellington CBD where 169,000sq m is under construction, then Auckland where 110,600sq m is being developed and where vacancy is tight.

Rents are rising here too.

New Zealand office rents have proven resilient in the pandemic. The rebound will be less pronounced with New Zealand CBD office markets forecast to record effective rental growth of 1.6 per cent per annum from 2021 to 2024, the research found.

Who’s going to fill NZ offices of the future? JLL says it will be 25 per cent professional services like accountants and lawyers, 22 per cent healthcare, 11 per cent education, 9 per cent admin, then public admin, real estate and information services.

The New Zealand technology sector is becoming more relevant with the global innovation index ranking us seventh in the Asia Pacific region for innovation, while Deloitte’s Asia Pacific Technology Fast 500 included 40 New Zealand companies.

Wellington is proving our tightest office market with very few chances for investors to buy commercial space.

The Wellington CBD is a defensive office market with strong exposure to the public sector. It recorded positive net absorption last year of 35,800sq m, JLL said.

Domestic investors have “buy” mandates for office assets with refurbishment potential.

Precinct Properties was one of the most active investors and bought Bowen House at 70-84 Lambton Quay for $92m.

The building will need major spending to improve its seismic strength, but its strong location and limited availability in the Wellington market will support its leasing campaign post refurbishment, JLL noted.

The general sentiment in Auckland’s office leasing market remains positive.

But occupier inquiry is gravitating to better quality assets and the prime/secondary vacancy rate is diverging.

Last year’s 107-day Auckland lockdown hit sales volumes in the second half, JLL said.

But total Auckland transactions volumes reached $824.8 million last year, up 39.3 per cent annually.

Border closures limited offshore capital sources looking to buy in the city.

But big deals were still done by locals. The largest transaction was Precinct Properties selling half the ANZ Centre at 23 Albert St for $177m, JLL noted.

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