and Suburban Office
While yields continued to trend downward, investors remained increasingly keen to acquire quality assets with good tenants or those that offer value-add opportunities.
The overall suburban vacancy decreased during 2H19 from 5.9% to 5.5%, indicating strong and stable demand across the suburban markets. The lower cost of occupying space, availability of good quality supply and limited options in the CBD core continue to drive tenant interest. However, suburban markets have experienced a flight to quality, underpinning a firming of vacancy in the top end and comparatively less interest in secondary assets.
Completions of new supply in the suburban markets have continued to be few and far between, with much of the action remaining limited to the CBD and fringe markets. However, there are notable development projects currently in the pipeline including 55 Corinthian Drive, expected to deliver ~5,400 sqm to the Albany market in mid-2020, and the potential 15,000 sqm of office space in planning for Mt Wellington to be built as part of Sylvia Park on land acquired by Kiwi Property Group over 4Q19. Refurbishment activity is expected to continue across the suburban areas.
The rental growth of recent years was consolidated in Takapuna during 2H19 with rents standing firm at $330 psm (reflecting a range between $260 - $400 psm). After taking a substantial increase in 1H19, the new build sector for both fringe and suburban stock saw rental rates remain static in 2H19, continuing to sit at $585 psm and $380 psm respectively during the last six months.
Yields continued to trend downward, with all markets tracked recording some compression. The transaction market also saw a small number of sales occurring above the $5 million mark. Investors remained increasingly keen to acquire quality assets with good tenants or those that offer value add opportunities.
*Suburban office refers to Newmarket, Takapuna, Albany and the Southern Corridor sub-markets.