Gross rents increase but net rents remain unchanged

• Average gross prime rents increased by 2.1% in the quarter. Average premium rents were NZD 828 per sqm per annum and average Grade A rents were NZD 665 per sqm per annum.
• However, these gross rent increases were a result of OPEX increases. Net prime rents per annum remained unchanged at NZD 518 per sqm for premium and NZD 350 per sqm for Grade A. OPEX, across all grades, has grown at an average of 16% since 2023 and by 5% since Q2 2024.

Available space increases and demand for high-quality space remains

• Wellington CBD’s vacancy rate increased as a result of new supply, ongoing refurbishment and strengthening programmes. The overall vacancy rate increased to 7.7% with Prime vacancy up by 160 bps to 4.9%, while Secondary vacancy increased by 100 bps to 9.2%.
• Wellington City Council consolidating from four premises into 68 Jervois Quay in 2025 is an example of the ongoing occupier transitions occurring. The building will be a 5-star, Green Star-rated premises with a seismic rating of 100% NBS, ‘Yellow Book’ IL2.

The first notable sales transaction for the year is recorded

• There was a notable transaction in the quarter, after limited significant transactions over the first two quarters of 2024. This was the sale of 161 Victoria Street, Te Aro, for NZD 28.15 million, a 3,814 sqm property that sold for an initial yield of 7.21%.
• Average Prime and Secondary sector net yields remained flat, at 6.35% and 8.69%, respectively. Yield firming is projected to commence in the short term as the OCR and interest rates decrease, with Prime yields are expected to decrease by 12.5 bps by December 2024.

Outlook: Ongoing works will boost supply and increase overall quality of office supply

• Ongoing refurbishment and strengthening programmes, along with new buildings under construction, will help increase the overall proportion of quality-office accommodation in Wellington, which has lagged behind other major cities.
• Pressure on gross rents to increase at a greater rate as a result of high inflation, high construction costs, and an increasing operating cost environment will be tempered by affordability, upcoming stock availability and new supply.