Auckland Fringe Office market snapshot Q3 2020
Our 1H20 vacancy survey revealed that vacancy has risen across the fringe and suburban office sectors over the last half. The only exceptions to this were Newmarket and Takapuna, which each saw a slight fall in vacancy to 4.1% and 2.9% respectively, down from 4.6% and 3.0% respectively in 2H19. Tenants in the suburban and fringe office sectors have been noticeably more affected by COVID-19, especially those in the tourism or international education sector, and SME companies. Looking forward for the rest of 2020, vacancy within the lower grade buildings is expected to trend upwards.
In 1H20 we recorded the completion of several projects in the fringe development pipeline. Among these were the refurbishment of 107 Carlton Gore Road in Newmarket by Argosy (leased to Kainga Ora for 12 years); and 74 St Georges Bay Road in Parnell, a new build of 2,054 sqm by Mansons TCLM (for their own business). We did not record any additional completions within the suburban precincts in 1H20, however. Potential deferral of medium-term projects currently in the planning stages and limited new supply will assist in supporting current rental levels.
Average net face rents have remained broadly static for the fringe and suburban office markets this quarter. The Southern Corridor, however, saw a 2.6% fall to $255 psm due to high vacancy. The fringe and suburban precincts continue to provide relatively affordable rental rates compared with the CBD, helping to support rental rates in the fringe market. Average CBD fringe yields softened over the quarter by 6bps (q-o-q) from 5.94% to 6.00%. In comparison, Newmarket yields remained static at 5.81% during 3Q20. Yields have also remained static at 5.81% and 6.19% for Takapuna and the Southern Corridor respectively.