Auckland Southern Corridor office market snapshot Q3 2020
In the Southern Corridor, vacancy rose 100bps to 10.4% from 9.4% in 2H19. Overall suburban vacancy rose from 5.5% to 5.7% over 1H20. As in the other suburban office markets, tenant makeup in the Southern Corridor has seen the market being significantly more affected by COVID-19. With the wage subsidy now having come to an end, businesses, particularly SME companies and those in the tourism or international education sector, are facing higher cash flow issues, dampening demand for space.
With the completion of several refurbishment projects, total stock in the Southern Corridor office market rose 2,341 sqm to 185,471 sqm over 1H20. We do however expect medium term developments, such as 664 Great South Road (Butland Holdings Limited), to remain in early planning for the coming months as we await further direction on market and economic movements in the current climate. We expect refurbishment activity to continue over the coming quarters, though much of the Southern Corridor office market development pipeline remains in the planning stages.
Southern Corridor rental levels faced further weakening due to high vacancy and increased competition from sublease availabilities, now sitting at $255 per sqm (-2.6% q-o-q). As a result of its relative affordability, incentive levels in the Southern Corridor have remained static during 3Q20 at 13%, equivalent to 1.5 months rent free per lease year. With a lack of transactions, yields have remained static during 3Q20 at 6.19% for the Southern Corridor. We have noted investor appetite shifting more toward prime assets and assets with more defensive tenancy profiles.