Offices are still in hot demand for occupiers across New Zealand’s three main centres, and particularly prime quality offices and well-located secondary space, according to CBRE New Zealand’s latest Office Space Market Trends research released today.
Key highlights from the research are:
-Wellington sits at pre-pandemic levels of low vacancy
-Christchurch occupiers lead the way down to 7.6% vacancy
Start your property search
-Flight to quality and location drive the Auckland market
Wellington sits at pre-pandemic levels of low vacancy
The Wellington office market has bounced back over the past six months, with CBD office vacancy dropping in Wellington to 8.2%, decreasing by 3876sqm in the first half of 2021. Prime vacancy sits at 4.4% with secondary vacancy at 9.9%.
This is due to a mixture of factors including a lull in new supply, the withdrawal of vacant space from the market for refurbishment and redevelopment, and the take up of both head and sub-lease vacancies.
Matt Hince, senior director of office leasing for CBRE in Wellington, says that the Wellington office market has displayed a level of resilience that would have seemed improbable a year ago.
“At this time last year Wellington was experiencing a surge in the sub-lease market as businesses struggled to understand the impact of working from home as a long-term proposition, question marks over the general economy and the uncertainty always created by an upcoming general election.
“These questions have largely been answered in a manner that is very supportive of the growth in office occupier demand in the capital, with the majority of sub-lease space being withdrawn from the market or taken up as tenants seized opportunity to relocate to higher quality building grades, which had been in severe shortage for quite some time.
"The consequence is that Wellington CBD is experiencing essentially pre-pandemic levels of low vacancy and inflationary rental conditions, which is a situation that appeared most unlikely twelve months ago.”
Christchurch occupiers lead the way down to 7.6% vacancy
The first half of 2021 has seen high levels of occupier demand in Christchurch, with around 12,000sqm of new occupancies since December 2020.
With four new occupancies in excess of 1000sqm in the CBD office market and a further 14 new occupancies of between 500 and 1000sqm, the prime CBD vacancy rate is down to 6.6%. The biggest demand for space has come from professional services firms, which took up over 3000sqm. The information, media and telecommunications sector also experienced positive leasing activity with more than 1,800sqm of new occupancies in the first half of the year.
Adam Wallis, senior negotiator at CBRE in Christchurch, says that the strong take up means that vacancy decreased from 10.4% last December to 7.6% in June.
“Christchurch is demonstrating real resilience in the office market. Less than half of the CBD office space that was available in December 2018 is vacant now. Secondary office stock has also seen vacancy fall from 18.7% last December to 10.9% in June.
“The increase in indicative net effective rents in prime stock - both CBD and suburban - is driven by the decreasing vacancy, which is leading to a significant decrease in landlord incentive and a small increase to face rents. What will also follow this trend is the next CBD development phase, and we are already seeing some demand for this to happen.”
Flight to quality and location drive Auckland market
Although the headline numbers for Auckland show an overall increase in office vacancy from 12.3% in December to 12.9% at the end of June 2021, widespread demand for prime office space has come through strongly in the first half of the year, with vacancy dropping from 9.7% in December 2020 to 7.7% in June 2021.
Occupiers have been fleeing to high quality, prime office space following the completion of several large new buildings over the last eighteen months, including the PwC Tower, and healthy demand for vacated sublease options such as Tonkin & Taylor at 1 Fanshawe Street, and Aurecon at 185 Fanshawe Street.
This has partly led to rising vacancy in secondary grade buildings, which rose by 22,229 sqm over the past six months. This rise is also due to businesses going under as a result of closed borders; export education remaining the most impacted sector in this regard.
Nonetheless, demand remains good for well-located, refurbished secondary buildings such as 1 Albert Street, which has reached 83% occupancy since June this year and continues to attract tenants to its turnkey Alberts model.
Zoltan Moricz, executive director of research for CBRE New Zealand, says: “The Auckland CBD office market is seeing widespread demand for prime quality space. Demand for secondary is more differentiated. Despite continued occupancy losses in secondary grade, functional nice-looking secondary space in good locations is attracting occupiers, particularly those looking for flexible or turnkey solutions.
"Demand is there for space in great locations, particularly during what has been a positive economic environment.”
-Article supplied by CBRE
