With hundreds of fixed term rental agreements on Auckland CBD apartments about to expire, investors are worried about the potential for rising vacancy levels and falling rents

By Greg Ninness

A dark cloud of uncertainty hangs over Auckland's CBD apartment market heading into the New Year, with the fixed term tenancies of hundreds of inner city apartments about to end, and concerns about their ability to attract new tenants.

Smaller inner city apartments, sometimes referred to as shoeboxes, are particularly popular with overseas students.

However overseas student numbers are continuing to decline due to COVID-19 restrictions on international travel.

The number of people in this country on student visas declined by more than 17,000 between March and November, while the number of new student visas issued is down by 90% compared to last year.

That has CBD apartment landlords worried about rising vacancy rates putting downward pressure on rents and those same concerns are making investors re-evaluate how much they are prepared to pay for such properties.

However larger apartments that are more likely to appeal to owner-occupiers and are often located in the suburbs, are not facing the same pressures.

Investor caution is evident at the main Auckland apartment auctions, where prices for smaller CBD apartments are often well down from previous highs and many are being passed in, as a widening gap opens up between the prices buyers are prepared to pay and the prices vendors are prepared to accept.

Fairly typical was a one bedroom apartment in the Forte building on Symonds Street, auctioned by City Sales on December 16.

Located in the heart of the university precinct it was standard investor fare with a floor area of 24 square metres and the bonus of a functional balcony that afforded views across Grafton Gully and the Symonds St cityscape.

According to Propertyvalue.co.nz the unit had been purchased for $246,500 in 2005 and had a current (2017) rating valuation of $290,000.

However, although there were multiple bidders for the property, it sold under the hammer for just $260,000.

Buyers were similarly cautious at Ray White City Apartments' auction on December 17, where 17 apartments were offered.

One of them was a two bedroom (37 square metre) apartment in the Zest building on the Hobson St ridge, which had good views looking over Freemans Bay to the Harbour Bridge.

According to Propertyvalue.co.nz it had been purchased for $175,000 in 2012 and had a rating valuation of $330,000.

There were multiple bidders for the property and it sold under the hammer for $287,000.

Also of note at the same auction were two units in the Unilodge on Beach complex on Beach Rd in the CBD.

This is a managed student accommodation facility and both units were studios, one of 17 square metres the other of 19 squares, but there was one important difference between them.

One was under management contract to the hostel operator, while the management contract on the other had expired, allowing it to be rented out on the open market.

The 19 square metre unit, which was not part of the hostel pool, had a rating valuation of $220,000 and attracted just a single bid of $85,000 before it was passed in.

But the 17 square metre unit that was still under management contract, attracted a single bid of just $20,000 before it too was passed in.

By the end of the auction just four of the 17 units offered had sold.

This story was originally published on Interest.co.nz and has been republished here with permission.