The strength of the Wellington CBD office leasing market is defying sceptics who thought Covid-19 would prompt a blowout in vacancy rates, Colliers’ CBD leasing expert Steve Maitland says.
“Tenant inquiry is strong and not all leasing requirements can be satisfied. In particularly short supply are stand-alone properties in the CBD fringe (Thorndon and Te Aro) and A and B-grade properties with large floors in excess of 800sq m.”
CBD vacancy rates decreased in 2021 to 2.6 per cent for premium and A-grade tenancies, with B-grade vacancy at 3.8 per cent, and an overall vacancy rate of less than 5 per cent.
More than 30,000sq m of space has been removed from the market because of planned seismic upgrades and refurbishments, including Wellington’s largest office building, the 17-storey Asteron Centre in Featherston Street. The tenants, IRD, CAA, Callaghan Innovation, and Asteron, will all return after the upgrade.
Start your property search
Maitland says there are other buildings being upgraded, including Eagle Technology House in Victoria Street, which is undergoing a conversion to residential, while 80 The Terrace was sold recently and is also being evaluated for a possible residential conversion.
“Compared to Auckland, we are in a far stronger position with government occupying roughly half of the Wellington CBD office market. Changes in government work styles could further exacerbate vacancy levels but there has been little evidence of this to date.”
Maitland says some additional leasing options became available with tenants downsizing because of Covid-19 and firms adopting hybrid working models such as working from home and the office.
“This did provide initial vacancy, but it’s now been largely mopped up. Options that proved popular were those that had quality existing fit-outs in predominantly B-grade buildings. The low entry costs for tenants, often combined with a higher earthquake resilience, was well received.”
For instance, Colliers backfilled 1900sq m for Flux Federation in Customhouse Quay – a quality existing fit-out that the tenant could virtually move straight into with minimal work required and new terms negotiated directly with the landlord.
In another example, Vector leased three floors at 160 Lambton Quay and benefitted from an existing quality fit-out, including secure lobbies, large kitchens, meeting rooms, and furniture.
“In both of these cases, the relatively short-term nature of the existing leases allowed the new tenants and landlords to agree longer lease terms. This suited all parties and gave the tenants security of tenure and the landlords a longer weighted average lease term for their buildings.
“No additional large-scale vacancy is expected this year, but I imagine several options will materialise in the smaller tenancy sector, sub 200sq m, which is equivalent to 10 staff.”
- Article supplied by Colliers
