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News Release

Wellington

Tight tenant conditions in the capital


 

 

Grey Lynn office unit decked out for summer/new-zealand/en-gb/news/864/grey-lynn-office-unit-decked-out-for-summerAucklandGrey Lynn office unit decked out for summer
East Tamaki gem with new five-year lease/new-zealand/en-gb/news/863/east-tamaki-gem-with-new-five-year-leaseAucklandEast Tamaki gem with new five-year lease

​​Recent office vacancy figures released by real estate consultancy JLL show that the Wellington CBD office market continues to respond well to wider improvements in economic activity. With tenant activity remaining positive overall vacancy levels are now sitting at 7.7%. Vacancy peaked in December 2011 and is now more than 3% lower indicating that the market is on its way to a recovery of sorts. Vacancy within the CBD Core and Frame likewise fell 1% to 8.1% in the first half of 2014 indicating a widespread take up of space.

Steve Rodgers, National Director of Markets for JLL says, “There has been considerable discussion around the uncertainty hanging over the Wellington market over the past 12 to 24 months with firstly seismic and then government plans to retrench across the city. Clearly the most recent vacancy figures show the market has digested these risks and has gotten on with business. Although the election may cause some delay in transactions overall we would expect to see a similar performance over the next 12 months.”

Tenant demand remains strong for high quality grades with Prime vacancy now at 0.4% with larger corporates reconfiguring in anticipation of rental increases. The Secondary segment of the market continues to be weighed down by seismic issues and mixed sentiment across the board which has meant that take up in secondary stock has lagged that of prime.  Anecdotal evidence also suggests that landlords of properties in lower grades are seeking out alternative uses for current office buildings. We have already seen 57 Manners Street removed from the stock base for conversion into an apartment block and anticipate this trend to continue so long as the overall residential market is supportive.

Despite the tight tenant conditions, rents have generally remained stable over the first 6 months of 2014. Incentives for Prime rents in Wellington have hit a new low for the current cycle having a corresponding impact on net rents however rents in secondary stock have not responded as anticipated to date.

Justin Kean, Director of Research and Consulting for JLL says, “We expect to see average Prime Wellington yields to continue to decline throughout the second half of the year and level out at around the 8.1 – 8.4% mark. Upper rents are expected to move from NZD 555 psm to NZD 600 or around 1.5% per annum while the lower end will move from NZD 355 to NZD 425-430 approximately 3.7% per year. Prime stock is effectively at a structural vacancy level meaning we are unlikely to see any significant movement in prime vacancy over the medium to long term with any vacancy likely to be quickly absorbed.”

The government continues its on-going plan of further reduction in space in Wellington, with key agencies’ having already started signing key leasing agreements. This along with seismic issues will continue to affect Secondary vacancy going forward and will likely result in further divergence in the market for Prime and Secondary stock.