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JLL releases Pulse reports for Wellington market

Third Quarter retail, industrial and office market updates released



Long term investment with development potential/new-zealand/en-gb/news/916/long-term-investment-with-development-potentialAUCKLANDLong term investment with development potential
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shutterstock_29704882 small-min.jpgJLL has released Pulse reports for the third quarter of 2017 covering the Wellington retail, industrial and office markets.​

JLL Research Consultant Chris McCashin says, “The Wellington retail market, is seeing prime space on Lambton Quay remain at a premium, with opportunities being absorbed quickly in the current climate helped along by a host of international retailers who have recently entered the market.”

Although demand for prime space overall is stable, Southern CBD areas struggle compared to prime CBD locations, with the current vacancy rate for the Southern CBD sitting at 11.9%.  Supply through the years had remained quite static, however better retail conditions saw a new standalone retail development open on the corner of Manners Street and Victoria adding circa 1,000 sqm. 

Rental rates at the top end of the market in Lambton Quay have been driven by growing competition from tenants to source space in this premium area, with some top end rentals fetching approximately $3,500 psm. There have been no movement of rental rates in secondary areas, as trading conditions remain tough and this trend is likely to continue through the second half of 2017.  Outside of the CBD in Petone, there remains the trend of converting industrial properties to bulk retail.  A number of big box retailers are now located in Petone including Bunnings and the recently opened K-Mart. 

The Wellington office market remains fluid following seismic events of 2016 and vacancy has increased slightly as buildings come back into circulation following strengthening work.  

“Buildings that underperformed during the earthquake have seen tenants vacate to buildings with a higher new building standard (NBS) rating. Many tenants continue to evaluate their current location, but the lack of available space in the market is making it difficult for tenants to source suitable options with a wait and see approach happening. Despite the slight increase in vacancy, there is a lack of large space available with options over 500 sqm still limited,” says McCashin.

Around 25,000 sqm of stock has returned to the market following earthquake refurbishments but pinpointing future supply remains a difficult proposition. There is currently around 80,000 sqm out of the market and the future of some buildings following the earthquake is unclear. However, there is some supply due to enter the market, such as the Newcrest development at 20 Customhouse Quay, the new Transpower premises and PWC in 2018. There are also a number of developments that have been mooted such as Sir Bob Jones’ 12-story timber office tower, said to be the tallest wooden building in the world and the development by Willis Bond at Site 9 adjacent to the new PWC building.   

The shortage of space and the movement of tenants to safer properties following the earthquake has seen the rental rates for both prime and secondary properties spike in the first half of 2017. The lack of transaction activity after the earthquake means that yields have remained unchanged through the first half of 2017. Looking forward, further rental growth is likely in the short term due to the supply demand imbalance although this growth is likely to slow when new supply is completed. 

In the Wellington industrial market, demand for industrial property remains high and vacancy levels have dropped in all industrial precincts surveyed by JLL. The rate now sits at 3.4% across the region, near to the lowest levels post the global financial crisis. 

“We have seen limited new supply in the traditional industrial regions recently and more cases of industrial development in areas north of the city due to improved transport links,” says McCashin.

 Supply in the Wellington region as a whole, will start to increase as pressure is being placed on the stock base. The lack of available land in Wellington has seen a rise in development activity in decentralised areas such as Upper Hutt and Porirua. The conversion of Petone industrial stock to bulk retail stock will also put pressure on the stock base. 

Rental levels have risen in most precincts and the high level of demand has filtered through to secondary properties. Rental growth in the first half of 2017 was directly attributable to a more active secondary industrial leasing market with the availability of prime space still at a premium. The popularity of improved secondary industrial locations will serve to keep yields firm and drive rental growth, while the lack of available land will continue to increase land values.