Like its overheated residential counterpart, centrally located freehold commercial property is like hen’s teeth in in Dunedin, as occupiers and investors alike struggle to find quality options.
In this year’s sector prognosis, property company Colliers International expects to see office vacancy levels reduce further next year, after several new lease agreements this past year absorbed ‘‘significant’’ vacant office space.
That follows economic and tourism growth, low interest rates and major new property investment by the University of Otago, harbourside development and the $1.4billion hospital development, Colliers says.
‘‘Landlords are also increasingly opting to refurbish older office buildings in response to increased tenant demand, with upgrades to some buildings on Princes St resulting in office space that was once regarded as secondary entering the higher grade end of the market.’’
Several refurbishment projects and conversions of older, obsolete buildings into character office space in the warehouse precinct, have added several thousand square metres of office space to the Dunedin market.
Brokers say gentrified areas such as Vogel St had continued to attract businesses on the strength of other attractions, including cafes and shops and available parking.
International online education provider Education Perfect, for example, had recently moved its 100 staff into a 1500sqm floor at 77 Vogel St.
Edinburgh Real Estate Otago general manager Mark Miller said the rise in commercial and industrial demand over the past year had ‘‘tightened things up’’ on the leasing side, so it was harder to get into office and industrial in particular.
He said while the hospital development was expected to start having a bigger impact on the market next year, investor demand for quality was already outstripping supply, though international investor numbers had been curtailed by investment rules including anti money laundering regulations.
‘‘However, we have a strong cohort of local and up-country investors who are queuing up for quality space, so there is no lack of interest.’’
Increased investor confidence and competition among buyers had also resulted in properties selling at lower yields, with yields for prime office space at between 7% and 8%, industrial yields between 6.25% and 9% and prime retail space at between 5.50% and 7.25%, the Colliers report said.
‘‘Meanwhile, a move by Port Otago subsidiary Chalmers Properties to sell underlying freehold interests to existing long-term ground lessees will increase the desirability of these sites in the market, as well as their value if any of them are put up for sale in the future,’’ it adds.
Mr Miller said several larger companies had been looking for larger space in and around the city, though some these deals had taken ‘‘some time’’ to come to fruition.
The trend towards shared office space, through brands such as Regus, Innov8HQ, The Distiller and Petridish had ‘repurposed’’ older buildings.
Petridish co-founder Jason Lindsey, currently working on the launch of its underground engineering Makerspace initiative at its Stafford St site, has said he would also be looking at expansions to industrial sites across the road.
There was also interest outside of the city particularly for industrial deals. Focal areas included Duke and Carncross Sts, Mosgiel, where a new 3500sqm storage and distribution warehousing facility was being built for wood packaging company SRS.
Fast-growing exporter Tuapeka Gold Print had also announced plans to build a factory and warehouse development of up to 27,000sqm on its new 8ha site in Fairfield.
The city’s biggest shopping mall, the Meridian, was also on the market as part of a portfolio of retail assets including the Dress Smart outlets in Onehunga and Christchurch.
The portfolio was being marketed by Colliers, which remained tight-lipped about the sale process for the Meridian, but which did confirm the owner — Lendlease Funds Management — had considered a separate sale process for the Dunedin retail landmark.
