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News Release

Christchurch

Christchurch commercial property market shows great activity in first quarter

JLL releases commercial property research for Christchurch


 

 

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

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The Christchurch commercial property market has new stock coming into play as the city prepares for tenant movement back to the CBD.

While the country is buzzing following New Zealand’s victory in the America’s Cup and the successful Lions Rugby Tour (from a retailer’s perspective), the wider New Zealand commercial property market is also performing well, as we pass through the middle of 2017.

The Lions Tour historically, has brought in millions of tourist dollars and in 2017 it hasn’t failed to disappoint, with red jackets dominating rugby stadiums at every match. While the final numbers haven’t been tallied it was predicted that this tour would bring in $26.7 million to Auckland alone and generate 165,210 bed nights, which has resulted in accommodation providers being pushed to their limits. 

Although the overriding sentiment for New Zealand’s commercial property market is positive, some concerns are evident.  Interest rate increases and the availability of credit to the commercial property market, remain front of mind, while geopolitical uncertainty offshore poses obvious risks to us as a trade dependent nation.

JLL Associate Director of Research and Consulting, Tom Barclay says, “New Zealand has been a popular place to invest of late, particularly with offshore interests. Some investors have been removed from the market as access to funding has tightened, although this mainly impacted on local investors operating in the $1 million to $10 million bracket and for development plays rather than institutional quality stock. Even with foreign buyers active, the rate of yield compression has slowed throughout the country in response to a bottoming out of interest rates. It is possible that premium assets will see further yield compression with secondary and non-core stock likely approaching a cyclical low point.”


Office market

Core vacancy in Christchurch has reduced compared to 12 months ago, having declined from near 20% to 14.8%, although this is still considered to be an elevated level. The amount of office space available in the CBD continues to grow with around 22,000 sqm currently available for lease. 

New stock has come into the market, which is mostly leased to tenants moving back into the CBD. These properties include King Edwards Barracks Development, Riverlands House, 123 Victoria Street and the second stage of the BNZ Centre.

Office rentals in Christchurch reached peak in the second half of 2014, at $425 per sqm. Since then, office rents have dropped back and now stabilised, with the prime average at $355 per sqm. Secondary CBD rents have flattened to an average of $268 per sqm. 

Outside the CBD, vacancy levels are rising and suburban office rents are being reduced. Since the rental high of 2014, suburban rentals has decreased by 23.2%, with secondary properties dropping 22%. With the central city now finding its feet after the 2011 earthquake, smaller businesses are now looking to move back to the CBD and join the big players once their leases end in suburban areas, placing more pressure on suburban rentals. 


Industrial market

New Zealand’s industrial market has remained strong so far this year, with the BNZ performance of manufacturing index indicating a score of 58.5 in May, its highest level in 16 months, signaling the manufacturing sector is in growth mode. 

Christchurch’s prime industrial rental market has remained flat since mid-2015, with current levels sitting at $115 per sqm for warehouse and $200 per sqm for office space. In the first half of 2017, upper end warehouse and office rentals in the secondary industrial market decreased by $5 per sqm, with warehouse rents averaging $83 per sqm and office at $145 per sqm. This reflects the increase in secondary vacancy playing out as occupiers continue to move up the grade spectrum into better quality stock. 

The supply of industrial in the Christchurch market has increased markedly in 2017, with JLL now tracking a total of 3.6million sqm of stock in the market. Attributing to this increase are projects mainly located in western Christchurch, where new builds within developments such as the Waterloo Business Park have been completed. Recent examples include major developments for Cardinal Logistics, Sorted Logistics and Hagley Windows and Doors. Says Barclay, “Although the city has seen a significant increase in stock, it is encouraging to note that vacancy levels remained flat at 6% across the city, suggesting the sector has been able to grow at a pace which, has to date, absorbed a lot of new stock.”


Retail market

The Christchurch retail sector has two major projects set to open in late 2017, with The Crossing and The Terrace currently under construction. With CBD vacancy currently at 16.1%, it is possible that in regards to new retail space, the city is near a saturation point. Says Barclay, “There are numerous office buildings on the CBD perimeter with vacant retail space underneath that is yet to be occupied. We are also aware that some existing hospitality providers are finding it difficult to compete with the number of new entrants in the marketplace.

“Christchurch has an influx of white collar workers and this is driving the CBD retail market at present. What we need to watch for is the fact that, since the earthquakes in 2011, the city has lacked CBD residents, so during off peak times and over the weekend, retail trading is proving to be challenging.”

Roading disruptions are still an influencing factor in the wider CBD area and retailers are facing competition from shopping centres and bulk retail outlets, due to their accessibility and free car parking.

“Developers and the council have however, been proactive in addressing a shortage of car parks in the CBD, with a number of car park facilities having opened recently or set to open shortly. These car park facilities include the West End building, The Crossing car park, the Hereford Street car park and the Lichfield Street car park, followed by The Terrace parking building, which is due to open in the third quarter 2018. All up, these car parking facilities will add almost 3,000 car parks, which will hopefully drive more off peak trading to the CBD area,” says Barclay.​​​

Read the Stuff article here​