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JLL releases Pulse reports for the Christchurch market

Reports on Q3 2017 market performance now available



Long term investment with development potential/new-zealand/en-gb/news/916/long-term-investment-with-development-potentialAUCKLANDLong term investment with development potential
Former Fire Station on high profile corner site/new-zealand/en-gb/news/915/former-fire-station-on-high-profile-corner-siteCHRISTCHURCHFormer Fire Station on high profile corner site

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JLL has released its Pulse reports on the performance of the Christchurch retail, office and industrial markets for the third quarter of 2017.​

In the Christchurch office market, 20,000 sqm of CBD office space was absorbed in the first half of 2017 and core CBD vacancy has consolidated to 14.8%. The occupier pool is spread thinly over an increasing stock base as the city fast approaches the end of the first post-quake development cycle. Most major office buildings, bar the Westpac/KPMG building and Spark building have now reached completed. The challenge in the CBD is to fill the smaller spaces of 250 sqm-750 sqm that remain, as most of the larger floor plates have been filled by the big four banks and accounting firms, along with the larger engineering and legal firms. 

JLL Director of Sales and Leasing in Christchurch, Hamish Stallworthy says, “The JLL Christchurch office concluded three, circa 500sqm, CBD leasing transactions in the month of September, with landlords having all been in a position to provide at least one carpark per 35sqm of floorspace, a critical factor in decision making for many tenants.  In recent years, with the spread of commercial offices to fringe CBD and suburban locations, tenants have become accustomed to having ample car parking. On talking to tenants who are looking at relocating back into the CBD, a large proportion of them insist that having suitable parking for staff is imperative to their decision.” 

While prime CBD office rents appear to be bottoming out at an average of $355 psm, in the suburban market both prime and secondary rents continue to fall. Vacancy continues to rise in the suburban market with vacancy rates in secondary stock approaching 30%. Many tenants are opting to fill CBD space and prime rents in suburban locations such as Addington, Riccarton and Burnside have fallen to an average of $265 psm. JLL expect that CBD vacancy levels will remain elevated over the next 12 months, eventually tightening as space is absorbed, suburban vacancy on the other hand, will continue to rise as CBD gaps are plugged. 

Regarding the transactional side of the market, the average yield sits at 6.5% for prime CBD buildings and 7.8% for secondary stock. Given the risk of tenant flight, long term vacancies and decreasing rental levels, suburban yields generally sit at a 1.25%-1.75% discount to CBD yields. 

Looking at the retail market, early September saw the opening of The Crossing, one of Christchurch’s new retail experiences. The Crossing forms the largest retail precinct attraction and is anchored by Swedish multinational fashion store H&M. Occupier demand in the CBD is still driven mainly by the food and beverage operators to service the growing office population, although the fashion and nightlife sectors are to reach a turning point over Q4 of this year.

Major new supply pegged for delivery by the end of the year includes the eagerly anticipated Terrace development. With this development come another tranche of restaurants, bars and cafes.  The CBD retail scene is moving closer to the critical mass and connectivity that has been missing since the earthquake. 

Rental levels are however, still substantially higher in post-earthquake built spaces than what had been available in secondary space pre-quake. This is proving a potential barrier to the lower end retailers that help to create a dynamic atmosphere in the CBD. 

Tom Barclay, Associate Director of Research and Consulting at JLL comments, “During next 12 months there will be three key challenges for the CBD; the lack of a residential population to drive trade at weekends and off peak times, the fact that tourism levels post-quake are still down and are likely to stay down until hotels and the convention centre project are completed, and finally, competition from retail outlets close to the CBD such as Westfield Riccarton. To counter these, the CBD needs the right mix of tenants to provide a retail experience that cannot be replicated elsewhere”. 

In the Christchurch industrial market, vacancy rates across sector have remained flat at 6% despite new supply filtering into the market. Over the past year, there have been record rates of absorption that suggest the industrial sector is growing fast enough to accommodate the steady stream of new builds that are coming online. Tenants are continuing to move to prime space meaning there may soon be an oversupply of secondary space. 

Barclay explains, “While the development pipeline remains healthy, the number of industrial consents has dropped back from elevated post-quake levels due to market demand being satisfied for the most part.” 

Yields remain unchanged with prime rates between 5.85% and 7%, while secondary rates vary between 7% and 8%. In terms of transactional activity, the NZD 1 to 10 million bracket, continues to be the price point dominated by local investors and owner occupiers.