'Good time to be commercial landlord'

Landlords who own prime office property may soon start to increase rents significantly after a tough few years, Alan McMahon, national director of research and consultancy at Colliers International says.

Wednesday, August 13th 2014, 12:00AM

by The Landlord

The firm has reported a shortage of prime office space in Auckland and Wellington. Between the two cities, there is less than 13,000 sq m of space available. Just over 6000 sq m of that is in Auckland, where the prime vacancy rate is at a 20-year low of 1.4%.

McMahon said the balance of power had shifted firmly in favour of landlords and that would have serious consequences for tenants looking for prime office space to rent, or having rent review negotiations.

“In Auckland, the demand and supply imbalance is more pronounced than in Wellington. Therefore, net face prime rents are expected to rise by between 5% and 6% per annum over the next two years in Auckland, while around 2% in Wellington.”

He said most tenants were obliged to pay a market rent in their contracts. “If they can’t afford it they will have to consider going somewhere else. But rents went down significantly after 2008, they’re typically not paying much more than they were six or seven years ago. Hopefully most will be able to support it.”

McMahon said the shortage was being driven by a combination of increased demand and lack of new supply. “There are not many new buildings being built.”

He expected the imbalance to last at least another two years and potentially longer. He said it was a good time to be a commercial landlord of prime property. “After a difficult few years it’s their time in the sun now.”

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