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Wellington commercial landlords face a wall of lease expiries over the next couple of years, according to Jones Lang LaSalle’s Wellington property management director Justin Lester.
The expiries will particularly hit B to D grade properties and result in lower market rents and lengthier vacancies.
Jones Lang LaSalle Research reports that in the first half of 2010, central business district office rents continued to decline in Wellington, but plateaued in Auckland as the market regained some strength.
Vacancy continues to rise in both cities – estimated to reach 9% in Wellington and 18% in Auckland by mid-2014.
Jones Lang LaSalle is touting its property management expertise to help landlords engage with tenants to try and extend lease expiries beyond the vulnerable 2011-2012 years.
“By extending the lease expiry profile to 2014 and beyond, landlords will benefit from a strengthened negotiating hand and increasing levels of competition amongst tenants as the workforce continues to expand.”
“Operating costs, particularly in gross lease buildings, should be streamlined by tendering contracts for services to reduce costs.”
“Any savings can be offered to tenants as refurbishment incentives in exchange for additional rent or tenure.
“Alternatively, capital expenditure can be used to make the building more attractive by refurbishing items such as the building’s lifts, foyer and bathrooms.
“Over the past two years landlords should have identified their best and worst spaces and made improvements to the worst spaces to being them up to par. This can also be done by splitting floors to create a variety of smaller and larger suited or trying to maximise views.”
Trading off benefits is another ploy. If a tenant seeks to renegotiate lease terms via a rental reduction or surrendering space, landlords can mitigate future risk by negotiating additional lease tenure.
Mr Lester said this strategy should only be applied only where a bank guarantee is in place to cover any expenditure or where the tenant covenant is sufficiently strong.
- Chris Hutching
(04) 917 1323