Wellington Office market snapshot Q3 2020
Structurally low vacancy continues to characterise the Wellington CBD office market, particularly for prime space. Prime vacancy fell from 7.0% to 6.0% over 1H20. Secondary vacancy did increase from 8.3% to 9.9% over the half however. In Te Aro, vacancy rose to 9.6% from the 7.8% observed in 2H19. High pre-leasing continues among buildings currently under construction, indicating that low vacancy is likely to continue going forward. Government tenants remain a key demand driver, particularly for prime office space in Wellington.
3Q20 saw construction begin on two major projects in the CBD. Precinct properties began construction of Bowen Campus Stage Two, starting with 40 Bowen Street (72% pre-committed to Fujitsu, EY and Generator). On completion of Stage Two, comprising both 40 and 44 Bowen Street, 20,000 sqm of net lettable area will be added to Wellington’s office stock base. Construction also began on the new 17,500 sqm BNZ headquarters at 1 Whitmore Street this quarter. Like Bowen Campus Stage Two, completion of the project is scheduled for late 2022.
Rental levels are facing upward pressure due to a distinct and ongoing lack of available quality stock in the Wellington CBD. As at 3Q20, average prime CBD rents increased 0.9% (q-o-q) to $588 psm. On the other hand, we recorded a slight fall in secondary CBD rentals this quarter, with average rentals for secondary space falling to $353 psm from $355 psm in 2Q20. Average prime gross yields firmed 5bps to 6.50% over 3Q20. We expect rents and yields will continue to be underpinned by the capital’s status as the centre of government accommodation needs going forward.