Fabio Pagano – GM – Property

Every week, our teams are out in the market - meeting tenants, talking to agents, walking our properties, catching up with finance partners and industry contacts – all this is keeping us close to what’s really happening on the ground.

From day-to-day viewpoint, it is clear the market is starting to shift - not in dramatic leaps, but in small, incremental steps forward that you can feel on the ground. These signals don’t always match the more ominous headlines, but they’re there.

JLL’s latest data reinforces the mixed but improving picture we’re seeing, while vacancy rates in some sectors have lifted (Auckland CBD office vacancy is now 15.2%, up from 14.8% in the previous survey), prime industrial vacancy in Auckland is 2.4% - stable compared to the prior half-year - and retail vacancy in the Auckland CBD is declining. Prime rents are also largely stable and there’s a healthy pipeline of premium projects underway.

Our conviction remains that there will always be demand for quality, well-located assets, backed by strong tenant covenant and execution of strategy.

Against that backdrop, the early indicators matter, and we’re seeing examples of this every day. In the southern corridor, leasing inspections with potential tenants have almost doubled compared to the previous quarter. We’re securing sharper refinancing outcomes, with margins improving from both existing and sustainable lending.

Anecdotally, I heard last week that recruitment for investment-based roles is picking up - a good sign that capital is being readied for deployment. They’re small shifts, but they all point us in the right direction – moving forward.

Industrial - stabilising and evolving

In prime industrial, from where we’re sitting, we’re seeing the market continue to hold strong. Core vacancy remains tight, and tenants are becoming more selective about quality and looking for improved sustainability credentials - something we’ve made a huge focus across our portfolio in recent years.

There’s a clear push toward Green Star-rated developments at the top end of the market and build costs have started to reduce. The secondary market will take longer to absorb, but demand will return over time, along with broader economic activity. Our focus is on ensuring our assets are positioned to meet that demand now and into the future.

JLL data backs this up:

• Auckland prime industrial vacancy remains at 2.4%, stable compared to the prior half-year.

• Prime average net warehouse rents are holding at $193 psm p.a., with prime combined rents (warehouse + office) at $222 psm p.a.

• JLL notes industrial remains one of the most resilient asset classes, with opportunities emerging in both sublease and vacant spaces.

Office - reshaping, not retreating

Across our office portfolio, flexibility is playing out differently for every tenant, but it’s definitely here to stay. Some are consolidating into fewer, more efficient sites, while others are right-sizing or relocating to be closer to staff or customers.

We are seeing examples of tenants moving into the southern corridor to take leases in consolidated premises, still with plenty of parking to meet their operational needs, and all facilitated by being flexible. Moves like this aren’t about pure expansion or contraction - they’re about meeting the evolving needs of business and teams in today’s working environment.

Keeping a small level of vacancy is advantageous in some of our larger office assets - it allows us to move quickly when the right tenant comes along, which is essential in a shifting market.

JLL data backs this up:

• Auckland CBD office vacancy is now 15.2%, up from 14.8% in the previous survey.

• Prime CBD average net face rents are steady at $705 psm p.a., with A-grade at $505 psm p.a., and modest growth forecast into late 2025.

• Large-scale premium developments are in the pipeline, showing long-term confidence despite short-term supply pressures.

Retail - value in what’s already built

We’re seeing Large Format Retail continue to perform strongly. Anchors like supermarkets, hardware (Mitre 10 occupies two of our sites), and discount outlets such as Dress Smart Auckland, which we manage, are steady and well-located assets are holding their value.

We’re keeping a close eye on how the launch of market leader; IKEA will impact the market. In some areas, they’ll take share from existing furniture and homewares retailers, but in well-diversified centres with strong anchors, we see lower risk over the medium term. Our approach is to keep adding depth through a mix of occupiers alongside the large-format anchors. That diversification is key to long-term resilience.

Importantly, no one’s building big new shopping centres right now - the cost is simply too high - which only increases the value of our existing assets.

JLL data backs this up:

• Auckland CBD retail vacancy is 13.5%, down from 13.6% mid-2024, signalling an early decline.

• CBD prime average net rents are steady at $2,600 psm p.a., with incentives unchanged for prime CBD and suburban markets since early 2023.

• Investor demand remains strong for well-located large-format retail, with multiple Woolworths stores trading in the high 5% to mid-6% yield range in early 2025.

• JLL highlights shopping centres and large-format retail as outperforming other retail segments, showing underlying strength in the right locations.

Looking ahead

While challenges remain, the focus is clearly to look forward and upwards as we build momentum. Our portfolio is in a strong or strengthening position in nearly every aspect. Returns are steadily improving; active management is core and the execution of our strategies for assets is at the forefront of our minds every day.

As we secure these opportunities, our focus will be on applying active management expertise to execute the strategy of each asset through all phases of the cycle, ensuring they can adapt to market shifts, and position them for the best possible long-term outcomes.

When those opportunities do come to market, my advice is simple – we don’t sit back and wait, we go forward and take. The investors who move early, with the right strategy and a long-term view, will be the ones best placed to benefit from the shifting grounds of the commercial property market.