Wellington Office Market Snapshot Q1 2019
Prime CBD office space remains at near full capacity in the capital, with strong demand coming from both government and private tenants. Lack of supply in the top end of the market has been driven by the increased demand for buildings with higher NBS ratings and stock removals post-quake. This has underpinned the noticeable gap in vacancy rates between prime and secondary space, at 0.6% and 8.7% respectively as at 2H18. No major changes are expected in the next vacancy survey.
Total stock saw a ~25,000 sqm rise over 2H18 with 67,000 sqm still under construction. Following 4Q18, the Wellington office market has been unable to meet the demand for suitable space with the required NBS ratings. Despite the significant amount of new, high NBS rated, high grade stock currently in the development pipeline, the completion dates are keeping vacancy rates for high quality space low, with rental rates expected to continue trending upward.
We have not seen any significant changes in office rental rates since 4Q18, though some growth is expected before the end of 2019 for all grades. Gross face rents for prime and secondary office assets have stayed at $550 psm and $333 psm respectively. Incentives have not changed, with prime CBD assets at 2.0% and secondary CBD assets at 8.8% and no further expectation to change for the next 12 months.
1Q19 did not see enough transactions to make an assessment on yields, however we have kept outlook at 4Q18 measures of 6.65% for prime space and 9.25% for secondary assets.