There’s now clear evidence the times are a’ changing when it comes to falling rentals for commercial space in Auckland City.

Research figures clearly show that the cost of renting commercial space in Auckland’s CBD and other areas is down.

But what do the figures really mean?

You have to be very careful about what to read into figures in the current market for a range of reasons. Firstly, the number of transactions is way down, from a period in 2006 and 2007 when there were thousands of lease agreements being signed up, the number of transactions today is now only in the “low hundreds”!

This means what appears to be a trend may well not be one at all.

It is absolutely critical to look at more than just the price per square metre that is quoted.

Landlords are not keen to reduce the face rental on a property, as this reduces the perceived valuation of a property to banks and other financiers.

So rather than reduce the rent, there may be other incentives, such as rent holidays, built into a lease agreement.

Traditionally, people always look to historical evidence when assessing the value of a property. Valuers are legally bound to take this approach.

But I would like to suggest that today’s business owners think differently about value and valuations. Alongside the traditional valuation, you need to carefully assess the present worth of a property against its future benefits. Simply looking back on historical valuations will not give a full, true or useful picture.

The market is in a complete state of flux with a large number of liquidations, both of property owners’ companies and tenants alike, in the past few months. So real trends are hard to spot.

Navigating through this volatile market requires some careful thinking about current worth versus future benefits when assessing the value of a property, and this goes for both tenants and landlords.

An analysis of research by CB Richard Ellis shows some significant downward trends in commercial rentals in both the Auckland CBD and other areas over the last four months.

The premium category in the Auckland CBD – with a standard of buildings comparable to the Vero building or PWC Tower – has dropped by nearly $20 a square metre; down to $413 a square metre.

In the CBD’s Category A buildings, rentals are down $6 a square metre to $294. Category B is down $5 to $229, Category C is down $12 per square metre to $174, and Category D is down $13 per square metre to $130.

There are still some very good deals outside the CBD area. In Category A CBD Fringe buildings, rentals have dropped $7 per square metre to $263 and Category B is down $10.50 to $193 per square metre.

It’s interesting that Category B outside the Auckland CBD, for instance, is still a high quality space, often newish, landscaped and with modern facilities, and that space in these properties has now dropped below $200 per square metre.

It’s a brave new world in the commercial property market, and those who investigate and research what is behind the face value while looking to the future, will come out on top.

This entry was posted on Tuesday 3rd February 2009 and is filed under Property Leasing. Both comments and pings are currently closed.