Project Auckland: What future for offices in these pandemic times?

What’s Auckland office space demand doing when so many people are working from home now and are pandemic predictions of a demise of the commercial sector proving true?

Or does New Zealand’s largest private developer’s $250 million spec projects cast doubt on such predictions?

Culum Manson had no qualms about pushing “go” on a speculative $250 million Newmarket office project, telling the Herald in February that leasing inquiries were rising. Not only was there strong demand for new A-grade high green-star rates commercial premises, but to get staff to return to offices, corporates needed to upgrade, he explained.

Yet Vodafone NZ wants to sub-let around half its office space in Auckland and Christchurch at its Innov8 hubs, saying so many staff work from home now, or are on flexible arrangements where they are only in the office when needed, that its requirements have changed.

United States tech giant Salesforce was the latest to take a radical approach to where staff can work, following the likes of Facebook and Microsoft. In early February, the Herald reported he San Francisco-based multinationals 30,000 staff will get three choices of work day. Flex, fully remote or office base are choices for Salesforce staff.

In the US, some of the gloss was taken off the work-from-home boom with some companies, including Facebook, saying staff will face pay cuts if they work remotely long term and move to less expensive areas.

The Financial Times reported on research from Nicholas Bloom, an award-winning British economist at Stanford University showed people at home were promoted at about half the rate of those in the office.

Vodafone NZ acknowledged some staff had already left expensive areas of New Zealand.

Fidelity Life NZ will soon move to Manson’s TCLM’s new state-of-the-art twin block nearing completion at 136 Fanshawe St.

The pandemic had not discouraged it from leasing new space, even though many staff worked from home, according to Simon Pennington, chief financial officer, and Tanya Hadfield, chief people officer.

Hadfield said staff had worked from home for extended periods but a corporate’s culture could be undermined if everyone was in different locations.

“From a cultural perspective, we want people to use the building as a hub. You lose your culture if you have all your people working from home all the time. We plan to offer a trial and the opportunity to work from home for two out of every five,” Hadfield told the Herald last year.

Colliers International’s national director of research and communication Chris Dibble said Auckland CBD’s overall vacancy rate rose from 4.7 per cent to 8.8 per cent between December 2019 and December 2020.

In Wellington, the increase in vacancy over the same period was more muted, rising from 6.1 per cent to 6.9 per cent, he noted.

Last year, Auckland got an extra 50,000sq m of new commercial floorspace, increasing stock by around 3.5 per cent, his research showed.

“The extent to which flexible working is adopted by occupiers will have a longer-term influence upon vacancy rates. Flexibility will be a key driver of the market over 2021,
needed by staff, tenants and owners. Sublease options have also increased the availability of high-grade stock, which has been in short supply,” said Collier’s latest commercial report.

That had resulted in a number of companies taking the opportunity to upgrade office needs, Colliers found – just like Manson said.

“Therefore, future increases in vacancy will predominantly be within the secondary market with prime property continuing to enjoy better demand,” the research said.

CBRE’s marketview last year found all grades of Auckland commercial office space had occupancy losses, except premium.

Auckland commercial property sales volumes had fallen by 50 per cent and were influenced by Covid and the supply of property coming onto the market. Prime CBD office rents had fallen 1.9 per cent annually, CBRE noted.

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