The lack of quality available buildings in Wellington’s CBD is forcing major occupiers to make decisions about their office space up to five years ahead of their lease expiry.
Steve Maitland, Colliers Wellington CBD leasing specialist, says tenants need to take a more strategic approach and look ahead so they can secure the right premises to match their requirements.
“This has been a trend for the past decade with tenants becoming more demanding about building quality, seismic safety, and the landlord themselves,” Maitland says.
“The Covid-19 lockdowns have not produced the options that the market in Wellington requires.
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"In Auckland, it’s been a very different story where head offices for airline, tourism, publishing, and telecommunications firms experienced dramatic downsizing – as much as 40,000sq m, cutting their overheads.
“We’ve only seen a portion of the expected corporate downsizing in Wellington, which means supply to the market is minimal, only circa 4000sq m since Covid-19 hit in 2020.
"To a limited extent, this has helped market dynamics in the short term, providing good quality existing fit outs in some premises but that supply has been virtually exhausted.
"The bottom line is the market needs more space to satisfy demand.”
Many of the buildings becoming available have small floors which are not considered effective for large-scale workplaces.
They often have poor building quality, an inferior location and or unsupported or historic seismic reports.
All of these factors eliminate many of these buildings as office options. Instead, these buildings are often being converted into hotels or residential developments.
In particular, the uncertainty of seismic ratings in many buildings means they’ve become redundant and incapable of providing long-term solutions for tenants without major seismic strengthening and refurbishment.
Maitland says the modern office occupier is searching for efficiency and flexibility in their workspaces.
“New ways of working require a greater number of meeting rooms and break out areas. Enhanced flexibility is being offered to staff, providing them with the ability to work remotely, hence reducing the required workspace area.
"Other strong emerging themes are sustainability, including Green Star ratings, and carbon neutral and energy efficiency-rated office buildings.
“Lockdown has shown us that tenants can work remotely but home is not always the best alternative. We are seeing workplace planning changes that provide an ‘edgier’ office space, providing a point of difference to the home environment.”
Tenants are already snapping up the last remaining tenancies in the current phase of building development in the Wellington CBD, which will deliver new office space from the third quarter of next year through to mid-2023.
It is unlikely that any new developments, not yet underway, will be capable of providing occupiable space until 2025-2026.
Maitland says some of the city’s larger occupiers are assessing their needs four or five years in advance of their lease expiry and embarking on a programme to achieve the way they want to work.
“Leaving the decision making until far closer to lease expiry runs the risk that not only will you be competing with other tenants, but there’s the distinct possibility that the building solution that you require does not exist or cannot be aligned to match your lease expiry within the short timeframe.
“Tenants need to be proactive to create a solution otherwise they will be a taker rather than a maker.
“Lease negotiations currently underway with Colliers are expected to further reduce office supply, making it even tougher for tenants to secure their perfect premises.”
- Article supplied by Colliers
