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Wellington

JLL releases Pulse reports on Wellington market

Third quarter retail, industrial and office market updates released


 

 

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​JLL has today released its Pulse reports for the third quarter of 2016 on the Wellington retail, industrial and office markets. 

In the Wellington retail market, the prime upper rental rate for Lambton Quay frontage has reached a record of NZD 3,200 psm, up substantially from the base level of NZD 2,575, which had persisted since 2011. 

Demand is high, particularly from high-end retailers. The opening of David Jones is a key driver of this renewed interest. Mid to low-tier retailers however are suffering from decreased consumer activity. 

Wellington retail is forecast to retain momentum through 2017 thanks to the arrival of various international retailers. Competition for prime space on Lambton Quay will keep rents at an elevated level.

The new retail development on the corner of Victoria and Manners Street, due to open in 2017, may be a catalyst to rejuvenate this part of the CBD along with the Weltec campus. 

The Wellington office market appears to be approaching a turning point with rental rates softening at the top end and a rise in vacancy observed over the first half of 2016. Both landlords and tenants are becoming aware of the increased capacity beginning to appear in the market. 

As the impacts of the Government’s WAP programme filter through, landlords are looking at alternative uses for sites. This is evident in Tel Tower and HP House being purchased for conversion to university halls of residence and apartments. Another conversion is 204 Lambton Quay to the Park Hotel. 

On the investment side of the market the first half of 2016 has seen a drop in transaction activity in the office sector. However demand for assets remains high and with new stock available we expect a pick-up in activity to close out the year. Both A and B grade average yields compressed over the first half of 2016 and are forecast to firm further in the second half of the year. Supply will continue to decline as stock is taken out of the market for government refurbishment and vacancy will continue to rise with the impending delivery of BP House and the Kumutoto Precinct. With limited new tenants entering the market, rents may see a slow decline as landlords offer incentives to retain or attract occupiers. 

Industrial yields have firmed over the first half of 2016 and the market continues to improve on the back of strong domestic demand. Investment activity is expected to drive yields lower and demand will remain high for good premises. 

Limited development activity and a lack of new prime space in the Wellington industrial market has driven an increase in rents in the secondary market as occupiers look at sub-prime space. 

Constrained land supply is holding back development, rather than a lack of demand. New roading upgrades may see tenants wanting to relocate near key transportation routes. We may start to see a drift of industrial occupiers north to Paraparaumu and Levin, where more land is available for greenfield development. 

Investment activity is down after two years of unprecedented transaction volumes. The problem lies in a lack of quality stock rather than a lack of investor demand. The trend of converting industrial space for higher and better uses as areas demographically change is impacting those looking for secondary industrial stock and rental movement has been observed in this portion of the market as a result.