Vacancy increases across all grades and precincts

• For H1 2024, Prime vacancy increased by 160 bps to 4.9%, while Secondary vacancy increased by 100 bps to 9.2%.
• A vacancy has been created at HSBC Tower (195 Lambton Quay), with Simpson Grierson moving into 40 Bowen Street. MinterEllisonRuddWatts will move out of 125 The Terrace (250 Lambton Quay) mid-year into the new BNZ building (1 Whitmore Street).

A number of refurbishments are underway

• Precinct Properties’ 61 Molesworth Street in Wellington’s parliamentary precinct is due for completion in late 2025. This will be an 11-storey office building primarily leased to the New Zealand Ministry of Foreign Affairs and Trade.
• Other government moves include the Earthquake Commission moving into Victoria Lane Office (161 Victoria Street) and the Department of Prime Minister and Cabinet partly leasing the recently refurbished Environment House (23 Kate Sheppard Place).

Transactions remain at a historical low

• With no transactions for the first half of 2024, yields remained unchanged. Average net Prime and Secondary yields stood at 6.35% and 8.69%, respectively.
• With the interest rate cycle viewed as being at its peak, yields are forecast to remain at current levels until mid-2025, with limited firming until well after the forecast commencement of the easing of interest rates.

Outlook: Upcoming vacancies and rising OPEX lead to negative growth in forecast net effective rents

• Beyond December 2024, rents are largely expected to remain unchanged for the next few years as new unleased developments (either new builds or refurbishments) come on stream.
• With OPEX growing by approximately NZD 5 per sqm each year and rents not increasing each year, this has resulted in a reforecasting of net effective rents to decrease each year between 2024 and 2026.