Christchurch Office Market Snapshot Q1 2019

Demand

Office accommodation in the Christchurch CBD has enjoyed relatively persistent demand, however the majority of the occupiers that were displaced by earthquakes have been able to relocate back into the CBD Core and demand is now largely satisfied. Though this relocation is typically to the detriment of fringe and suburban stock, this has created opportunities for tenants wishing to relocate or move up the grade spectrum outside of the CBD. While several projects edged closer to completion in the CBD, these are primarily pre-leased by anchor tenants and will not deliver significant vacancy.

Supply

We have seen a significant drop in the development pipeline in 2019 compared with recent years, with most of the stock taken by the 2011 earthquakes now having been rebuilt. With rental rates softening to sustainable levels, occupier demand being largely satisfied and rising construction costs, no more major projects are forecasted to enter the market after the current pipeline reaches completion. New builds are now struggling to attract large anchor tenants which are required before commencement.

Asset Performance

Following data from recent transactions, rents are continuing to face consistent downward pressure. Prime CBD office rents fell from $340 psm to $325 psm (down 4.4%) and secondary rents from $243 psm to $213 psm (down 12.4%) during the 1Q19 period. Suburban office rents are now at $213 psm (down 3.4%) and $150 psm (down 11.8%) respectively. With post-quake demand now largely satisfied, rental rates are in the process of being corrected, moving back to equilibrium levels.

Yields were relatively stable, with minimal increases from last quarter. Average yields for primary and secondary space were 6.50% and 7.88% respectively, with suburban yields up 50bps to 8.50%.