APPD Market Report Article

Wellington

May 26, 2024

Gavin Read, Head of Research, New Zealand

9.4%

NZD 700

Rents
Rising

Upper end of Prime rents increase significantly

  • Average monthly gross rents per sqm increased by NZD 45 for prime CBD to reach NZD 700, and by NZD 22 for secondary CBD to reach NZD 420. The upper end of gross prime CBD rents increased by NZD 60 to NZD 800 per sqm per month from NZD 740, while the lower end increased by NZD 30 to NZD 600 per sqm per month from NZD 570. These rent hikes were mostly from owners trying to offset OPEX increases.
  • Growth in rents during the next few years is expected to plateau, with vacancies forecast to increase as a result of new supply coming on stream.

Vacancy changes marginally, but tenant movements continue

  • For 2H23, vacancy in the CBD increased marginally, to 6.4% from 6.3%, representing an additional 5,417 sqm of available space. This figure is made up of CBD Core, which stood at 7.0% vacant, and Thorndon, which stood at 2.6%.
  • There were a few major tenant movements at the end of 2023. For example, with Datacom leasing three floors at Asteron Centre (55 Featherston Street), vacancy in this refurbished building decreased by 432 bps, leaving 16,000 sqm vacant at 68 Jervois Quay. Meanwhile, 44-48 Willis Street (Spark Central) had an increase in vacancy as three floors previously leased by Spark are now available.

No significant transactions over the last nine months

  • While we have started to see a trickle of transactions this year, we are well off the highs seen in 2021 across the value and volume of properties sold. There have been no significant transactions in this market during the last nine months.
  • Average net Prime and Secondary yields remain unchanged in the quarter at 6.45% and 8.69%, respectively. However, a softening of around 10 bps is expected across all grades by December 2024, before the tightening cycle starts in mid-2025.

Outlook: Presence of government tenants remains a key demand driver

  • With the presence of government tenants as a key demand driver for office space, Prime vacancy is expected to remain at lower levels of around 3.0%, while Secondary vacancy may face some upward pressure from an anticipated increase in backfill vacancy, due to developments completing. Secondary buildings are also expected to struggle with OPEX increases as rent growth is forecast to plateau.
  • Across both the occupier and investor markets, seismic strengthening issues continue to be a headwind, with several sales of properties failing over the year due to weaknesses in the due diligence information that was available. Both investors and occupiers are showing a very high level of caution in this area, a sentiment that we expect to continue to see in the medium term.

Note: Wellington Office refers to Wellington's CBD office market.

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