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News Release

Auckland and Wellington

Down with Misery



Long term investment with development potential/new-zealand/en-gb/news/916/long-term-investment-with-development-potentialAUCKLANDLong term investment with development potential
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​​JLL have released the results from their latest Landlord Misery Index which combines two key indicators in the market that directly impact on a landlord’s bottom line - prime office vacancy and lease incentives for prime office space. 

Auckland’s index has continued to fall through 2014 to sit at 10% in June. After peaking at close to 25% in 2010 / 2011 the index has fallen significantly on sound occupier demand which has driven down vacancy and adjusted pricing around incentives for new prime leases.  The outlook is for the index to fall further to mid-year 2015 creating conditions for a landlord favoured market which should continue to push up rents across prime stock. 

Justin Kean, Director of research and consulting at JLL says, “The long term average for the Landlord Misery Index in Auckland is 14%. We take this mid-point in the data to represent the tipping point between a tenant and landlord market. The index passed this point in the first half of 2014 and is set to continue to sit well below this level for several years.”

Kean continues, “Our advice to landlords through this period is to maximise upside as would be expected, however where there is also an opportunity to alter the term profile of a lease to avoid 2019-2021. In our view this would prevent exposure to future downside risk.”

Wellington’s index has also seen a sharp decline in recent months highlighting the sharp falls in prime vacancy being experienced in the market. The Wellington index peaked at 11.2% in 2012, with the Wellington office market being decidedly less volatile than the Auckland CBD.

Since its peak the index has fallen to 3.4% which represents the lowest level in the history of the index. This is a result of the extremely low vacancy profile in the Wellington market which is also at the lowest level in the JLL series which dates back to the 1980’s.

Tim Dick, Director of Valuations & Advisory at JLL Wellington says, “The outlook for the Wellington market is to maintain the tight market conditions as seen in recent years however the impact on rental growth is likely to be muted when compared to similar product in Auckland. Although rental growth is anticipated to be positive, the strength of this growth is likely to be impeded by the large amount of sublease space currently available in the market.”
Dick continues, “We are also aware of the impact of the shrinking government footprint in Wellington however this is unlikely to impact occupancy in the short to mid-term meaning it is more of a 2018-2020 problem and reflects accordingly in our forecasts.”

The concept of a Misery Index, as first proposed by US economist Arthur Okun, is common in the study of economics combining unemployment and inflation do show the extent of economic erosion on households in the economy. The JLL Landlord Misery Index combines incentives on a nine year lease for prime office space and prime core office vacancy to show the value erosion of market conditions at a given time. This helps to demonstrate what stage in the property cycle prime office is positioned. 

Kean concludes, “Whilst many commentators only focus on vacancy as an indicator of the overall property cycle the additive impact of tracking incentives also acts to more accurately illustrate the high and low points of the office market cycle.”