Auckland versus Wellington flight to quality

Bayleys’ recent CBD office market insights reports highlighted the “flight to quality” occurring within both the Auckland and Wellington CBDs.

Chris Farhi, Bayleys’ head of insights, data and consulting, says there are some commonalities, but also some subtle differences, between each market.

“Flight to quality has been a persistent trend across both Auckland and Wellington CBDs for many years led simply by occupiers seeking newer buildings and higher amenity locations.

“Flight to quality has been a persistent trend across both Auckland and Wellington CBDs for many years led simply by occupiers seeking newer buildings and higher amenity locations.

“The drift to the waterfront in Auckland CBD’s office market has been driven by amenity and the emergence of flagship new and/or campus style buildings in Britomart, Downtown, Wynyard Quarter and the Victoria Quarter.

“Wellington’s waterfront preferences on the other hand have purely geographical drivers as the CBD already largely follows the waterfront, although the 2016 Kaikoura earthquake highlighted shortcomings of reclaimed land which will limit future waterfront drift.”

Seismic strength is a key pillar in Wellington’s office market with Mark Hourigan, director Bayleys Wellington Commercial, saying seismic integrity cannot simply be determined by building age, given that the Kaikoura earthquake impacted both modern and older buildings.

“New and shiny does not always mean seismically-resilient,” he points out.

“Our leasing team has been proactively on the hunt for suitable space for many large office occupiers displaced by strengthening shortcomings revealed during routine seismic assessments at lease review time.

“Tenants typically want a minimum of 67-80 percent NBS supported by a recent detailed seismic assessment, and at the premium end of the market, new buildings using base isolation to improve seismic resilience are in high demand.”

In Auckland, although most major tenants will set minimum seismic thresholds for new leases, there is a generally lower level of concern about seismic risk than in the capital.

There are also differences in sustainability criteria for office buildings in Auckland, largely being driven by corporate environmental, social and governance (ESG) policies according to Steve Rendall, Bayleys national director commercial leasing and strategic advisory.

“Most major corporates seeking modern buildings will list Green Star ratings within their criteria, but will generally have a greater level of flexibility than occupiers in Wellington where government mandates are at play.

“It is less common to see absolute minimum criteria being applied in Auckland but we expect occupier demands to firm on the back of wider adoption of sustainability goals.”

In Wellington, Hourigan says the government’s 2021 sustainability mandate is a market game-changer.

“Crown agencies entering a new lease, or renewing a lease, for premises larger than 2,000sqm require a minimum NABERSNZ 4-star rating and target 5-stars.

“Given the government’s large footprint in Wellington, these sustainability credentials have become an immediate priority for landlords and we anticipate the private sector will ultimately follow the government’s example.”

A trend being seen in the Auckland market, but not in Wellington, is high demand for turn-key office suites by small to medium-sized business.

“These occupiers are willing to pay a premium for the quality and convenience of contemporary office suites of varying sizes that are fitted-out and ready to go,” says Rendall.

“This looks set to be an enduring trend, with developers and landlords responding with increasing supply and a variety of offerings.”.

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