The Ideal Office

It’s good time to go looking for office space. The commercial property market is awash with options, big and small, that provide good fit for organisational budgets, logistics, customers and staff.
And in marketplace where margins are under pressure, businesses are looking to get the most from their premises. There are lot of factors to consider before choosing the right premises, not least of which is the increasing mobility of people and the trend toward working from home, the car and the office.
Senior executives and property managers are looking for quality office space which increases individual efficiency and delivers measurable cost-effectiveness for the enterprise. Managers want “smarter” space. Space that will cope with future IT demands, provide people-friendly work environment – inside and out – plentiful parking, easy access to their city’s arterial roads and all at affordable rents. Things don’t really change much.
Location is still key driver in the decision-making process and the dispute between CBD and suburban fringe continues today as it has for decades. But while legal, banking, accounting and financial service businesses prefer to remain close to their clients in high-rent high-rises downtown, others – particularly those with less personal customer-contact – have opted for lower leases and more spacious inner suburbs premises.
Alan McMahon, professional services director of real estate agents Colliers Jardine NZ, says the migration to Auckland’s city fringe, for instance, continues as it has for years. “There are now no compelling reasons for people to stick together,” he says. “With email and e-commerce the need for businesses to congregate in city central has gone. The fringe is fine if you don’t get many visitors or have to meet clients all the time.”
Some firms linger in the CBD for face-to-face meetings, but the “new breed of business” doesn’t have to be here. These companies are drawn to the fringe by better car-parking, good arterial access and cheaper rentals, although that’s getting pretty blurred – some of the new buildings in Great South Road are getting rentals as high as similar quality accommodation downtown.
According to McMahon companies choose the city fringe for purely pragmatic (read price) reasons. It is rarely lifestyle choice. “There are no parks or leafy walks in Penrose,” he adds. And employees seldom appreciate the lack of shops, the difficulty in getting sandwich or going to the bank at lunchtime. Things invariably settle down after two or three properties are established in an area and support services start to appear.
Fellow Auckland real estate agent and managing director of Richard Ellis, John Chomley, has heard the CBD versus fringe debate for the past 20 years. There would, he says, be no-one left downtown if all the talk about treks to the suburbs were true.
“It’s trend that waxes and wanes. The fringe is fine for those whose day-to-day business is not primarily in the city and do not have to be close to their clients,” he explains. And in the suburbs tenants can lift their profile through more easily negotiated naming rights.
They can usually get cheaper rentals on the fringe, but that too is changing. Some secondary city and fringe properties are now charging rentals of $220 to $250 per square metre plus operating expenses.
Last year the Auckland CBD working population increased for the first time in several years as businesses moved back into downtown premises, attracted by more affordable rents in the secondary properties vacated by those moving to the suburbs or upgrading.
“There are some pretty good deals out there for smaller firms,” says Bayleys Real Estate communications manager, Neil Prentice. Rentals for secondary stock have dropped as people upgrade and move to newer buildings and others move in. “There has been an increase in the education sector and IT office space take-up in the central city,” he says.
John Lang Lasalle managing director Don Harrington says the drift to the fringe is real but over-played. There is two-way movement with more leaving than arriving.
The most exciting fringe development coming up, he says, will be Highbrook, New Zealand’s first truly international business park on 152 hectares formerly owned by the Sir Woolf Fisher estate at East Tamaki.
Eventually housing half million square metres of commercial space, the project is aimed at high-tech and educational users with some light industrial tenants with low environmental impact. town centre will provide workers with retail and other services.
It will be low-density with almost 50 hectares set aside for streets and open spaces.
But, says McMahon, there is now more office activity in the Auckland CBD than for several years after the recovery from the huge vacancy levels of the early ’90s.
“As demand increases and vacancy rates reduce, rents go up to the point where new developments become viable. Three years ago, rents were so low no-one started new downtown building.”
High rise is the traditional way to go in the CBD. Developers build high to justify the higher land values. In Auckland, areas such as the Viaduct Harbour are attracting low rise buildings. According to McMahon, tenants get more value from low-rise because they are quicker and cheaper to build and the developer needs less commitment to make the project viable.
Symphony Property managing director Chris Minty says new space is going up “ in tune with demand” while many companies are upgrading, leaving lot of secondary, “back-end” property available. Organisations are driven by efficiency. That means measuring on the basis of the cost per staff member. Five years ago the measure was total gross occupancy cost. It is more refined now and tenants are looking at efficiencies through cost per employee. They look to get the most staff in and therefore the floor plate size is major driver.
Tenants want systems that perform. They want better air conditioning, good lifts and acoustic ceilings as they move to open-plan offices. And they want car-parking. “We can never provide enough parking to meet their demands,” says Minty. Managers are also looking for buildings they can identify with. “They want to create sense of ownership. Most would prefer to be in building with two other tenants rather than 30.”
Smaller businesses sometimes buy two or three-storey office on the city fringe often with an eye to capital gain. But almost all companies lease space rather than buy. The tax deductibility of leasing costs and reluctance to tie up capital in owning building, are primary motivators, according to Chomley.
“But the argument for buying is improving with lower borrowing costs,” he says. “Buyers can borrow at about 7.5 percent and get 10 to 11 percent yield from the building. However, property is still not their core business and companies generally don’t want to get into property and be involved in all the hassles of property management.”
Wellington suffers from major shortage of premium office space, according to Colliers Jardine joint managing director Bill Leckie. The capital has vacancy rate of only two to three percent for top space. “If you wanted reasonable amount of space, 2000 to 3000 square metres, in something like the IBM Tower, the Majestic or 125 The Terrace you wouldn’t find it,” says Leckie. “There’s nothing left in Wellington.
“Vacancy levels in B-grade buildings are reasonably healthy at 12 to 15 percent and with rentals at $180 to $220 per square metre the churn is normal. At the C-level, many buildings have been leased by education institutions or converted into apartments – otherwise they would be standing empty.”
Wellington’s new 15,000 square metre Lampton Tower on the old Harcourt site is under construction but most of the space has already been leased by the Ministry of Foreign Affairs. Law firm Simpson Grierson is also taking three floors. Rentals will be around $450 when the building opens in about two years.