APPD Market Report Article

Wellington

November 28, 2022

Gavin Read, Head of Research, New Zealand

2.4%

NZD 628

Rents
Rising

Prime vacancy is expected to remain low

  • Following the trend from the Auckland CBD office market, Wellington has started to see the flight-to-quality trend, resulting in a rising rental narrative and a widening divergence between prime and secondary assets. This is forecast to carry over into 2023.
  • For 2Q22, there was a marginal fall in Wellington core (CBD and Thorndon) office vacancy from 3.3% to 3.2%. Vacancy in the CBD Core is at 3.9% while vacancy in Thorndon stands at a meagre 0.2%.

A good development pipeline progresses

  • There is a pipeline of several developments under construction in the CBD, with these being a combination of new builds and refurbishments. Several of these developments are largely pre-tenanted, such as Bowen House, Site 9, Archives Building and BNZ Building.
  • The move towards flexible working is expected to be further enhanced in the CBD, with Generator’s Bowen Campus anticipated to open next month.

Prime average gross rents increase

  • Gross average rents for prime buildings increased by NZD 5 per sqm to NZD 628 per sqm per annum, with secondary buildings marginally increasing by NZD 3 per sqm to NZD 384 per sqm per annum.
  • There was just one notable transaction for 3Q22, being 26 The Terrace (NZMA House), a 1,078 sqm property that was sold for NZD 7.0 million. This property had an initial yield of 5.95%, equivalent yield of 6.25% and a WALT of 5.7 years.

Outlook: Positive sentiment across the city’s office market

  • Wellington office market sentiment has improved with the removal of pandemic restrictions, as more employees return to their workplaces. However, the focus in a post-pandemic world is for more collaborative spaces to cater for hybrid working strategies.
  • The focus on sustainability has continued to increase, with the example of Precinct Properties announcing that it will look at opportunities to reduce residual emissions from embodied carbon through refits, such as Bowen Campus in Wellington dropping embodied construction emissions by approximately 50%.

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

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