With persistent high demand and little office stock, rents in the prime end of the market have remained stable, while secondary rental rates have continued to rise.
High demand persists into 4Q19 with little office stock available in central Wellington. Total vacancy has continued to fall, now down to 5.9% from 6.1% in 1H19. Though our 2H19 vacancy survey revealed that prime vacancy has remained stable at 0.7%, secondary vacancy has continued to fall.
With ongoing issues surrounding existing low-NBS rated accommodation and much of the space currently under construction or refurbishment already pre-leased, this trend is likely to continue into 2020.
With such high demand and limited stock available for occupiers, the development pipeline will be critical to Wellington’s ability to expand going forward. Though good levels of pre-leasing across most developments in the pipeline mean vacancy rates are unlikely to climb significantly, the quality boost of accommodation will continue to propel the city forward over the next few years. Increasing government expansion is also likely to be a strong driver of refurbishment and new construction into the near future.
Rents in the prime end of the market have remained stable this quarter at $575 psm. However, secondary rental rates have continued to rise as tenants who are not able to lease accommodation in Grade A buildings settle for secondary space, and now sit at $348 psm. Along with this rise in gross face rents, Opex has also continued to climb, though at a rate faster than just the rental element.
Similar to industrial markets, both prime and secondary yields have remained unchanged into 4Q19, resulting from little transactional evidence recorded over the quarter. We recorded just one transaction over $5 million this quarter, being the sale of the Exchange Building at 7-23 Allen Street in October, which sold for just over $20 million at a yield of 7.99%.