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Nathan Smith
No matter which way it’s cut, the health and wealth of a city relies on office building space. Because, if there is nowhere to put a business, how can the local economy expect to grow?
Auckland is no different. It’s not the big-gest city in the world – and it probably never will be – but, after a significant lull in major construction, the city’s commercial and resi-dential capacity is finally booming.
According to analysts, the city has become so overcrowded that if a company needs 2000-3000sq m of office accommodation in a prime building, it simply can’t be found.
For clients to occupy the most modern office buildings, the market demands that every few years new stock (a city’s inventory of available commercial buildings) is created. But in the six years from 2008 to 2013 since the global financial crisis, there was no signifi-cant building construction triggered across the Auckland CBD.
Jones Lang LaSelle research and consult-ing director Justin Kean says he’s now seeing a building boom, with a serious amount of new supply coming in commercial property.
“We put that number somewhere between 260,000 and 300,000 square metres of theo-rised additional space in a market that is only 1,400,000 square metres in total.
“It’s likely that only 200,000sq m will eventually come available but that is defi-
nitely a boom. That boom is really exciting because it will provide for the next generation in the follow-ing stage of the business cycle,” he says.
There was a flurry of development committed
pre-global financial crisis but, because of the length of the construction cycle, those build-ings were completed post-GFC, which meant they came into the market when demand was soft. By 2014 they were almost fully leased.
The lag in new builds is not untypical of the way the business cycle works, Mr Kean says. Businesses grow and buildings take three or four years to build. The two never quite match. When a stable supply of office space appears, it triggers more development, allowing the next stage of development to begin and so on.
“What tends to happen is the prime build-ings will maintain occupancy but it’s the next tier down where the cracks start to appear. So it’s not that there’s an oversupply in the prime space, it’s just there’s a repositioning in quality.
“So we’ve had a long time between
innings, I suppose, from a development point of view. A lot of the development we’re seeing now is catch up,” Mr Kean says.
The historic average of net absorption in the Auckland CBD has been about 20,000-25,000sq m of office space a year (in other words, the equivalent of one PwC building added each year).
Property Council chief executive Connal Townsend warns that unless Auckland Coun-cil identifies and allocates land for business development, with speed, then it risks seri-ously under-providing sites for commercial development in Auckland.
“This will have disastrous consequences by stifling the region’s economic growth and potentially resulting in Auckland’s inability to service and provide sufficient jobs for a grow-ing population,” he says.
“This situation could be worsened by residential building activity occurring on land where business activities should logically take place, dampening commercial growth.”
A related issue is the conversion of office space into residential apartments. Over the past cycle, about four large office buildings of 15,000-20,000sq m each have been removed from the market. Without those buildings, more pressure is exerted down through the different tiers.
“Whether there’s more planned conver-sions is hard to tell because the cost-benefit is quite uneven. This has everything to do with
the fact that the residential market itself is on fire,” says Mr Kean.
Bayleys Research analyst Ian Little says land values in Auckland’s industrial zones have been climbing in 2014, reflecting a gen-eral lack of land supply within established precincts and the extremely limited amount of land being brought to market.
“A majority of development activity con-tinues to be through design-build where premises are built to the requirements of a pre-committed occupant,” he says.
For instance, the Spark, ASB and Fonterra buildings are all “campus-style” buildings that aren’t considered prime, are driven by an occupier and are located outside the CBD. Such buildings provide space for a new gen-eration of occupier who valued the working experience more than occupying the best building.
Bayleys Real Estate’s national director commercial and industrial John Church says in the longer term Auckland needs an adequate supply of business land if it is to prosper.
“Buyers comprise a mixture of develop-ers, who are mostly undertaking design build projects for committed tenants, some owner occupiers and investors or land bankers who are prepared to accept little or no income from a property in the expectation that the land will continue to appreciate in value,” Mr Church says.
Jones Lang LaSalle’s Mr Kean says there will be at least one new prime office building built in the CBD in this cycle, perhaps two.
“And there’s a real prospect of a continua-tion of the campus-style elsewhere. Those will happen almost independently of each other because they will be targeting different tenant types,” he says.
22 / The National Business ReviewNovember 28, 2014
The city is New Zealand’s biggest and the economic engine of the country. After a worrying stagnation following the crippling glocal
financial crisis, Auckland is finally changing gear in time to grasp the opportunities of a new business cycle. Every relevant indicator shows
the city growing in important leaps and strides – from construction to events, to the crucial addition of more talented people to the melting-
pot mix. Auckland is truly booming in exciting ways and it’s time to find out why.
The Auckland boomSpecial
Report
Expect more commercial buildings in the CBD
JUSTIN KEAN: Says at least one new prime office building will be built in the CBD in this cycle, perhaps two
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Riding the property waveVictoria Young
As Auckland gets its growth going, signals are strong the property industry will ride the wave.
Staples Rodway director Mark Kingsford says of all his clients, which are mainly private sector businesses of small to medium size, those who are really feeling the boom are property clients.
Mr Kingsford says every-one from individual build-ers to large commercial landlords is seeing the boom benefits.
“The smart money was in that game two years ago and what we are seeing is good value and the future
sales pipeline is good.”The building and con-
struction industry share Mr Kingsfords’ view: the latest AECOM construction sentiment report says while Auckland and Christchurch now compete for property sector resources, 57% of respondents believe there will be growth in Auckland infrastructure in the next three years.
Furthermore, 90% of respondents believed there would be growth in residen-tial buildings, while a further 80% saw investment going into existing buildings.
This compares with
Continued P25
SPECIAL REPORT: THE AUCKLAND BOOM 23The National Business Review / November 28, 2014
Michael Barnett
Internationally, Auckland is one of the developed world’s fastest growing cities, with an average annual increase in population of 2% over the last 10 years.
It is a great place to live, and global quality of life indicators rank Auckland consistently high, the fourth-best city in the world to live.
It is a migrant city, with 37% of its population born overseas. Thus its sense of identity chang-es with the changing popula-tion, the constant arrival of new blood, new energy and the city continuing to expand – upward and outward – in response to the waves of population growth and change.
And according to an interna-tional study, Auckland is one of the most entrepreneurial cities in the world.
So, if you ask me why is Auck-land booming, I put it down
to our confidence in Auckland and our strong self-belief in our capabilities.
Also, at the moment there is strong national and internation-al confidence in Auckland. Auck-land commands a third of New Zealand’s GDP, and more than half New Zealand’s foreign direct investment (FDI) over the past 10 years has been in Auckland.
It is the alignment of these various expressions of confi-dence in Auckland that is fueling the current Auckland boom and, I suggest, giving optimism that Auckland’s growth success is becoming increasingly broad-based.
Locally, nationally and internationally, there are high expectations of Auckland and its potential to be a global city of scale. We are no global backwa-ter but increasingly perceived as the South Pacific’s commercial and lifestyle capital.
Auckland’s job market is
booming thanks to a surge in construction work covering housing and infrastructure. With a score or more of major con-struction projects and a demand for 30,000 new houses, there is a wall of work facing Auckland over the next few years. We are short of nearly 32,000 construc-tion industry workers, and 2000 ICT sector specialists.
On an international level of brand awareness, Auckland’s food and beverage sector, ser-vices, super yacht building,
tourism, attractiveness for foreign students to study and growing international reputation for entertain-
ment and music are all adding to Auckland as a city of scale.
The major transport infrastructure
projects under way
or start-ing – the
Waterview Tunnels, design of the Central Rail Link (CRL) and others – are attracting skilled tal-ent to career-advancing jobs in Auckland. In turn, the delivery of these projects is reinforcing the confidence of international investors to develop a market presence, especially in prop-erty development (for example, office towers, hotels and apart-ment complexes) but also desir-able value-added activities such as R&D (for example, Haier’s expansion of Fisher & Paykel). The mantra “build it and they will come” is a vehicle by which Auckland’s growth is increas-ing and job opportunities are expanding.
And not least, reinforcing Auckland’s increasingly broad-based confidence and contrib-uting to Auckland’s booming economy, there is an increasing tier of small to medium enter-
Why is Auckland booming? Answer: confidence and belief
A large number of niche SME IT businesses, lots of start-ups and companies are getting on with doing business in all corners of the world
Continued P24
24 SPECIAL REPORT: THE AUCKLAND BOOM / The National Business ReviewNovember 28, 2014
Contact us0800 494 [email protected]
exploregroup.co.nz
prises (SMEs) expanding their businesses internationally. They are outward-look-ing, innovative businesses quietly but deliberately creating new Auckland success stories on the world stage (e.g. Mighty Ape, Milmeq, A-Ward Attach-ments, Agility CIS Ltd – the four winners of this year’s Westpac Auckland Business Awards). Reinforcing the view of Auck-land as one of the most entrepreneurial cities in the world, there are a large num-ber of niche SME IT businesses, lots of start-ups and companies getting on with doing business in all corners of the world.
Some of this activity is conversion of Auckland’s attractiveness as a city of migrants – new Aucklanders establishing a business and seeing a global market opportunity in their former home, or international students returning home and establishing joint-venture business links back into Auckland.
So why is Auckland booming? Because there is confidence in Auckland; people have choice. We are seeing Auckland as an opportunity to be a place to be inno-vative and creative; and internationally Auckland is perceived as a stand out
economy.But I suggest Auckland is growing and
having this success despite itself. I sense a frustration that we are not convert-ing our opportunities as fully and as fast as we could and nor are some govern-ment agencies working with business in a partnership that could deliver better international results. There is a lot of infrastructure improvements required, considerable frustration at the regula-tory hoops businesses are expected to jump through, affordable housing is in short supply, and an unemployment rate of about 5% at the same time that 40% of businesses are reporting difficulty recruiting staff with the qualifications and attitudes they require.
To maximise our huge opportunities and untapped potential to be a great place to invest, work and do business from, Auckland Inc still has work to do – we are going to have to think and behave differently if we are to lock in our recently found confidence and strong self-belief in to a long-term success story.
Michael Barnett is chief executive of the Auckland Chamber of Commerce and Industry
Why is Auckland booming? Answer: confidence and belief
From P23 Jamie Ball
Over at least the next decade Auckland’s population and income growth is expect-ed to outpace the rest of New Zealand, yet its migration inflows will be dependent upon it staying as a highly desirable place to live and work.
The city may have the world’s third best quality of living, according to the lat-est Mercer Quality of Living survey, but will that still be the case when the city is pushing two million people by 2031?
“The population growth is a signal that Auckland is a nice place to live and a booming economy that is providing peo-ple with jobs,” says a principal economist at the NZ Institute of Economic Research, Kirdan Lees.
“The flipside of that is: how do you manage that growth? We think that popu-lation growth is a positive but it does raise policy options that you’ve got to think about.”
Dr Lees is the author of the NZIER report “Big city life: Challenges and trade-offs for Auckland city” released in May. According to the report, at the heart of what can make or break Auckland as a liveable city is its narrow geography.
“We show how the twin harbours restrict the availability of well-located land close to the city. That means Auckland experiences big city outcomes, in terms of housing, that is more expensive and com-muting costs relative to its peers across the Tasman.”
Among numerous findings, the report says that Auckland’s rapid population growth and challenging geography
require “coordinated adjustments across a number of policies” to deliver a world-class city in which to live and work.
Since 2006, Auckland’s population has increased 8.5% to 1.4 million people while incomes for the average household grew from $64,400 to $76,500 over the same period. At such a growth rate, NZIER expects the average household income to reach $119,000 in 2031.
Over half of all immigrants to New Zea-land settle in the Auckland region: along with migration from elsewhere in the country, the city now contains fractionally over one third, or 33.4%, of the national population.
“Both population and income growth will start to change the shape of the city in the coming decades but in differ-ent ways,” the NZIER report concludes. “Income growth incentivises a push to the suburbs to build larger houses while
population growth increases density, the price of land and housing costs.”
While immigrants arriving to work and live make up most of Auckland’s growing influx, international students at the Uni-versity of Auckland contribute in means often unseen.
The economic benefit of the university to the city and the country is estimated to be about $6 billion a year. About 13% – or almost 6000 – of its students are paying international students: a proportion the university aims to eventually lift to 18%.
As of October, the top-five countries for the university’s international students were China (2373) followed by the US (525), Malaysia (423), South Korea (361) and India (299).
Acting international director Chris Berry says the university’s reputation serves as an important element of Auck-land’s attraction to highly skilled interna-tional workers.
“This enhances New Zealand’s global reputation as well as contributing to its economy. New Zealand is inextricably connected to global employment cur-rents and it is critical to ensure there are opportunities for highly skilled people in Auckland,” Ms Berry says.
The university says it has extensive support for international students and works closely with the city and central government to ensure a positive experi-ence for them.
Among other services, the university offers an international student support centre as well as a comprehensive pro-gramme of events to help international students meet and socialis with local students.
Ms Berry says there are a number of factors that attract international students to the city, including it being safe, peace-ful, friendly, relaxed and multi-cultural, as well as being connected to international and global businesses.
“The university is New Zealand’s high-est ranked university internationally and is a flagship for the city and New Zealand,” Ms Berry says.
“The university educates the future workforce and it drives research and crea-tivity. Research shows successful coun-tries and cities all have an internationally connected and recognised research uni-versity at their heart: this is the University of Auckland.”
Attracting newcomers: the fuel that fires the city
KIRDAN LEE: The population growth is a signal that Auckland is a nice place to live
Income growth incentivises
a push to the suburbs to build larger houses while population growth increases density, the price of land and housing costs
SPECIAL REPORT: THE AUCKLAND BOOM 25The National Business Review / November 28, 2014
Nick Grant
Not so long ago the cynical observation that the amount of culture in Auckland com-pared unfavourably to what’s found in a pottle of yoghurt had an element of truth to it.
These days, however, that crack won’t stick.
Auckland’s arts, culture and entertainment sector has never been more vibrant, as evidenced by a steady stream of well attended interna-tional musicals playing at the iconic Civic Theatre, regular Auckland-exclusive interna-tional music events at vari-ous venues around the city, plus a constant offering of locally produced live produc-tions and concerts.
And it’s continuing to grow – next March, for exam-ple, the previously bi-annual Auckland Arts Festival begins a cycle of three annual fes-tivals. Meanwhile, the cam-paign to raise $35 million to build a 600-seat theatre on the waterfront that will host productions from Auckland Theatre Company, the Royal New Zealand Ballet and New Zealand Opera is rapidly approaching its target and already has raised sufficient money to begin construction.
All of which contributes to making Auckland a truly “liveable city, if you want to use that expression”, says Robbie Macrae, director of Auckland Live, a council
business unit that presents live arts and entertainment events throughout the city as well as providing support to its arts and creative sector.
Beyond the buzzy, feel-good factor inherent to such activities, live events provide a significant economic con-tribution to the Auckland region.
“It does a number of things,” Mr Macrae says. “As well as the local Auckland
residents who attend such events, there are all the other people from around New Zealand who fly into Auckland to go to the Rolling Stones or Mary Poppins, and then make a weekend of it. As a result the hotels fill up, it’s good for the restaurants – and that flows out to the rest of Auckland as well.”
For example, 35% of the tickets to Broadway musi-cal Wicked were bought by people from outside Auck-
land, which – according to independent economic modelling commissioned by Auckland Tourism, Events and Economic Development (ATEED) – generated 36,770 visitor nights and made a contribution to regional GDP of $4.66 million over the show’s ten-week season.
And with 55% of those attending last weekend’s Rolling Stones concert at Mt Smart Stadium from out of town, it’s estimated that event will have generated $3.5 million in economic benefits for the city.
“Then if you stick on your economic multiplier of 7-1 [an internationally accepted equation for entertainment events, much of which goes to labour costs], that eco-nomic contribution gets even bigger,” says Mr Macrae.
“Having a strong cultural and entertainment precinct, venues and activities actu-ally also attracts investment to the city in general – when people from overseas are looking to invest in Auckland, for example, one of the things they’ll look at is, ‘Well, what else can I do here, or what else can my employees do here?’”
In May this year Auck-land Live rebranded, having previously been known by what might be charitably described as the amorphous name The Edge.
“We’ve now got a very
strong brand platform that’s cohesive and consumer fac-ing,” Mr Macrae notes.
More significantly, in 2010 the organisation became part of Regional Facilities Auckland (RFA) – itself a sub-sidiary of ATEED – thanks to the advent of the so-called
Auckland “super city.”In the four years since, the
business unit has increased its revenue by 70%, thanks in part to the economies of scale delivered by being part of RFA – in this respect it’s “a real shining example” of the benefits of amalgama-tion, says Mr Macrae – and a strategy of courting major international promoters and convincing them to bring their shows to Auckland.
That approach – and the wider one taken by ATEED – “is probably in the top tier of such strategies adopted by cities around the world,” according to Tony Gardner of Orange Group, which spe-cialises in staging large scale events.
“Event-based activity is becoming something that clever councils everywhere are trying to trigger and cre-ate more of, because there’s no longer any doubt there are really fantastic economic benefits to be gained,” he says. “And Auckland is being particularly proactive and clever in investing in and trying to attract that sort of business.
“I think the reason the strategy is legitimate,” Mr Gardner says, “is it doesn’t
just benefit a small number of companies, it delivers ben-efits across the economy.”
Explore Group marketing and communications execu-tive Aimee Jones agrees.
The work of ATEED – par-ticularly its Auckland Con-vention Bureau, which used to be part of The Edge – is especially important to the company’s Explore Events division, which is focused on the domestic and overseas corporate market.
“It’s vitally important to us that those functions are there,” Ms Jones says, “and that they’re bringing more business events into Auck-land.”
Explore’s positive view of Auckland’s general economic upswing is reflected in its reactivation of its Corporate Cup event, she says. A regatta in which 10 corporate teams compete on the Hauraki Gulf in ex-America’s Cup yachts, it hasn’t been run for the past five years, due to Explore’s focus on business growth in other areas and the impact of the global financial crisis.
“Now,” Ms Jones says, “we feel as though Auckland’s in a position to pick up with these kinds of things again.”
Show biz adds lustre, lucre to super city
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NO MOSS GATHERING HERE: Events like last weekend’s Rolling Stones concert contribute to regional GDP
LIVEABLE CITY: Auckland Live director Robbie Macrae says live events give the city a feel-good factor
a dismal 43% expecting residential growth in the lower North Island, and 42% expecting investment in existing buildings. AECOM’s survey of developers and government bodies saw overall confidence in invest-ment easing over the past six
months. “When you look at our
property clients, they are excited by the opportunities but each client has their own lens to look through,” Mr Kingsford says.
The only difficult area at present is retail but more hospitality ventures are tak-ing up those spaces, he says.
“In the product business, it is easy to replace your store with online, selling an experience like a night out is what buyers are buying.”
He says businesses could consider having online stores for greater efficiencies.
“Businesses which are set up without geographi-cal restraint mean you can still sell to the global market from Timbuktu.”
Riding the property waveFrom P22
