Unwavering demand for prime quality office space is likely to see landlords pushing up rents at the top end of the market, according to Colliers International's latest report on this country's main CBD office markets.
"While occupiers are expected to benefit from generally better business conditions, CBD office landlords will be keen to keep the pressure on by lifting rents and reducing incentives," the report said.
"Capital values will rise and investment demand will expand, although quality of asset and cashflow remain important."
In Auckland's CBD, the vacancy rate for prime (premium and A-grade buildings) office space was just 1.4% which was unprecedented, Colliers said.
"It was 4.7% six months ago and the 20 year average is 8.2%."
Just 6116sq m of prime office space was available in Auckland's CBD, which would accommodate up to 500 staff, which was less than 1% of the current office workforce.
That was putting pressure on secondary quality space as well, with the secondary vacancy rate in Auckland's CBD at 11.5% compared to the long term average of 13%.
That brought the overall office vacancy rate in the CBD to 8.2% compared with 9.4% at the end of last year.
"Tenant demand and the lack of supply will drive rents up," Colliers said.
"We are now forecasting annual appreciation in net face rents of between 5% and 7% p.a. over the next two years in the prime sector.
"The overflow of tenant demand will impact secondary rents, with a jump of between 3% and 5% over the next year, followed by lower rates thereafter."
In Wellington, plans by several government departments to move into upgraded premises is expected to result in higher vacancy levels in B and C-grade buildings.
"The lack of prime space [in the capital] has not translated into a rise in gross rents over the last 24 months as the market has been in a transition phase," Colliers said.
In the Christchurch CBD, tenants had committed to 50,000sq m of new office space and another 38,000sq m was nearing sign off.
That was still well below the 360,000sq m of office space that was occupied before the earthquakes, but "...momentum is now in place to advance absorption of new build space and gradual redevelopment that will drive further levels of new leasing activity," Colliers said.
However the rents for space in the new buildings would be considerably higher than the rents in the pre-earthquake buildings they replaced.
"Rents for premier space which used to reach between $270 and $350 per square metre p.a. are now $375 to $425 per square metre," Colliers said.
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