The post-quake rebuild has resulted in Christchurch offering a significantly higher distribution of A-grade office stock than its New Zealand counterparts, providing a unique opportunity for investors and occupiers seeking quality space.
An interesting turn is under way in Christchurch’s prime office space as the market looks to have entered a key ‘sustainable’ phase in its recovery process.
For months on months the media have concentrated on the downward spiral of the city’s office rents following the post-earthquake, despite the reality that rents were artificially high due to the lack of supply. Our latest Market Snapshot research shows that rents are now stabilising for prime office stock accompanied by the key telltale sign that incentives given to prospective occupiers are reducing.
This indicates that the supply and demand curves are much closer to equilibrium, following a significant drop in the development pipeline this year and with the majority of the stock that was reduced by the 2011 earthquakes now replaced by modern, high National Building Standard level stock and, crucially, occupied.
Rental rates have now softened to sustainable levels as the market has adjusted to its new stock level and with few new major projects forecasted to create market oversupply. Even the remaining projects in the construction phase that are visibly edging closer to completion in the CBD are already primarily pre-leased by anchor tenants and will not deliver significant vacancy when they open.
This result of these pivotal market supply shifts is that for the first time in a long while, landlords in Christchurch CBD office space are wielding more power due to the combination of a stabilising market and increasing occupier confidence. While we haven’t noticed any substantial rises in rent as yet (which in a recovery phase is not considered a bad thing at all), it’s the fundamental stock distribution changes that are making waves.
Not only is the market normalising in terms of new and modern stock, but as a direct consequence of the influx of modern builds over the duration of Christchurch’s rebuild, there is now a very positive distribution of A-grade office stock that surpasses sibling cities of Auckland and Wellington.
To be deemed A-grade, The Property Council of New Zealand asserts it must be a landmark office building located in a major CBD and a pace setter in establishing rents by including ample natural lighting, good views/outlook, prestige lobby finish, on-site undercover parking, quality access to/from an attractive street setting, premium presentation and maintenance.
According to our building grade breakdown, A-grade office buildings now make up more than 60 percent of Christchurch office stock, while considerably further back is Auckland with 47.2 percent (which includes 9.6 percent Premium stock) and Wellington with 28.9 percent. As a result, Christchurch also maintains lower levels of B- and C-grade building stock than both of its counterparts.
Figure 1: Distribution of Building Quality
Source: JLL REIS data
In a nutshell, the office sector in Christchurch is certainly back in the game. The post-quake rebuild has seen the forced modernisation of Christchurch’s office accommodation with A-grade stock now boasting a significantly higher distribution than Wellington and more than Auckland. Modern spaces are setting the pace and showing very positive signs of stability in establishing what we perceive are sustainable rents with growth potential within a market that after years of imbalance has seemingly reached equilibrium.
Christchurch is, most definitely, back on the investment radar.
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