Office tenants embrace green initiatives

Pressure is mounting for property developers and owners to incorporate green initiatives into new office buildings.

Friday, August 17th 2007, 12:00AM

by The Landlord

At the CB Richard Ellis annual Market Outlook breakfast this week, senior negotiator Lorne Somerville said that occupiers, especially the Government, were becoming increasingly focused on sustainability issues.

The Minister for Climate Change, David Parker, has announced that all A grade office buildings to house government staff in central business districts must have a five star green rating, and a four star rating is required for all B and other grade office buildings, says Somerville.

He noted that central and local government occupy over 161,000sqm of office space in the Auckland market, and that as leases expire, they will be required to locate to green buildings.

“Currently there is in excess of 112,000sqm of office space due to come available in the next 24 months in Auckland city fringe. With this level of supply it will become increasingly important to offer this type of property in order to secure tenants,” Somerville says.

Zoltan Moricz, CBREs’ research director, says the office market has recently performed well ahead of the retail and industrial sectors and achieved a return of 23% in the year ended March 2007 – the second best annual return of any property category since the inception of the Property Council Investment Performance Index in 1990.

“When you combine this performance with the lowest vacancy rates in twenty years, it is not surprising that the market is bullish about offices,” Moricz says.

He forecast that the outlook for CBD office space was healthy and that vacancy rates would remain at low levels until mid 2009. During this period some 94,000sqm of new and refurbished space is expected to be completed, of which two thirds currently has tenant commitments in place.

Unfortunately, the forecast for non-CBD or suburban office space looks less certain, Moricz says.

“The vacancy rate in the suburban office market is likely to double from its current 6.7% to about 13% over the next three years if all supply in the pipeline gets built and our demand forecasts eventuate. Of the projected suburban office developments, a large proportion is purely speculative – only 28% of this supply has tenant commitment,” Moricz says.

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