APPD Market Report Article


February 22, 2024

Gavin Read, Head of Research, New Zealand


NZD 655


Average gross rents unchanged across all grades and precincts

  • Average gross rents per annum were unchanged across all grades and precincts, remaining at NZD 655 per sqm for prime CBD, NZD 398 per sqm for Secondary CBD, NZD 447 per sqm for Thorndon and NZD 313 per sqm for Te Aro.
  • The upper end of gross Prime CBD rents is forecast to increase by NZD 20 per sqm through 2024, to reach NZD 740 per sqm per year, as a result of owners trying to offset rising OPEX costs, mainly driven by insurance premiums. In contrast, at the lower end, rents are forecast to minimally increase by just NZD 5 per sqm during the same period, to reach NZD 575 per sqm per year.

Prime vacancy decreases by 70 bps to 3.3%

  • Overall vacancy in the CBD increased marginally to 6.4% from 6.3% during the quarter, representing an additional 5,400 sqm of available space. This figure is made up of CBD Core, which stands at 7.0%, and Thorndon at 2.6%.
  • Victoria Lane Office at 161 Victoria Street has been completed, with the Earthquake Commission and Tonkin + Taylor taking up leases. Environment House at 23 Kate Sheppard Place has completed its refurbishment, with part of it being leased to the Department of the Prime Minister and Cabinet.

No transactions for the second half of 2023

  • Both average net Prime and Secondary yields softened by 13 bps to reach 6.35% and 8.69%, respectively. Both yields are expected to soften further by 13 bps each by the end of 2024.
  • We anticipate Wellington office yields to remain stable in the short term, with ongoing seismic risk already factored in. With interest rates nearing their peak but expected to remain higher for longer, Prime yields are forecast to soften to 6.45% (+10 bps) by the end of 2024 and then stay at this level through 2025.

Outlook: Prime vacancy to hold at 3% despite supply coming online

  • 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 as we are expecting increasing backfill vacancy from developments completing. On the other hand, Secondary vacancy is expected to gradually increase to around 9.0%.
  • New developments include two buildings under construction: 2-12 Aitken Street (pre-leased to Archives New Zealand) and 61 Molesworth Street (pre-leased to the Ministry of Foreign Affairs and Trade). In addition, there are two buildings in planning and expected to be ready in 2026, these being 48 Mulgrave Street and 110 Jervois Quay/111 Wakefield Street.

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

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