Wellington office
market snapshot 2Q20
Demand
Demand for prime office space in Wellington has been maintained across the half,with vacancy rates remaining low at 0.6% in 1H20 (a slight fall from 0.7% in 2H19). Secondary vacancy has increased though to 9.9% from 8.3%, prompting a 1.1% rise in total vacancy to 7.0%. With the prevalence of Government tenants as a key demand driver for office space in the capital, prime demand is likely to remain high. Continued high pre-leasing levels among buildings currently under construction also indicates a preservation of this trend.
Supply
Total stock increased by approximately 4,000 sqm over 1H20, including the completed refurbishment of Pastoral House. Meanwhile, 69,000 sqm of office stock remains under construction in the pipeline. There has been a number of new additions at various stages of planning and construction this quarter. Among these is the refurbishment and conversion of the Dunbar Sloane building, as well as the ~3,000 sqm development of the Victoria Lane Office Campus by Willis Bond & Co.
Asset performance
Over 2Q20, average prime yields firmed 5 bps to 6.55%, while average secondary yields remained at 1Q20 levels of 8.63%. Both prime and secondary face rents have remained at 1Q20 levels of $583 psm and $355 psm respectively. Insurance premiums and general ownership costs remain significant factors in investment decisions for Wellington's office market, while a lack of quality stock in the CBD continues to support rental levels. Moving forward, however, we expect to see yields diminish in response to wider economic concerns while incentives increase.
