Wellington office market snapshot Q1 2021
Prime office vacancy in Wellington increased by 1.2% in 2H20, while secondary vacancy increased by 0.3%.
Demand
Our 2H20 survey recorded an increase in Wellington CBD office vacancy to 7.6%. Prime vacancy increased by ~4,000 sqm (1.2%) while secondary vacancy increased by ~2,000 sqm (0.3%). Looking forward, the trend of a ‘flight to quality’ is expected to continue with the A grade market underpinned by ongoing Government requirement for offices in the Capital. In Te Aro, vacancy has fluctuated around the 10% mark since mid-2018 (currently 12.8% in 2H20). However, the area is expected to remain attractive to tech and start-up tenants due to its relative affordability compared to the CBD.
Supply
Over 2H20, we recorded ~12,400 sqm of completions, mostly attributed to the completion of 10 Brandon Street (60% pre-committed). However, over the same period ~13,000 sqm was withdrawn including 126 Lambton Quay and 120 Victoria Street (both for refurbishment). Construction has begun on several notable projects, including the BNZ Headquarters at 1 Whitmore Street (Newcrest), 40 Bowen Street (Precinct) and Site 9 (Willis Bond). Notwithstanding, it remains difficult to justify new office projects without a high proportion of pre-lease agreements.
Asset performance
Market fundamentals continue to support existing rental levels, with average prime ($588 psm) and secondary ($353 psm) rents both remaining at 3Q20 levels. This is despite a growing amount of sublease space which may materially affect the market if the space remains vacant when new build developments are complete. Yields have continued their longer-term trend of firming, clearly supported by a lower return environment locally and globally. We recorded two major transactions in the CBD in Q4, both Stride Property acquisitions, totaling $312.5m.
