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Wellington Office Market Report
Tight tenancy market prevails
A tight tenancy market prevails at the moment with no let up in sight at the moment.
Recent research reports point to the vacancy rate in the CBD to be around the 6% mark which is the lowest for a number of years.
The tight market has meant that landlords are now more bullish and rents are rising for good quality space. Rents for space that has been vacant for more than 12 months are tending to remain static reflecting the fact there are definite reasons why these tenancies are still vacant – poorly presented, overpriced, no views, slack landlord, low seismic rating etc etc. Most new stock of a reasonable quality and with a good seismic rating is leasing within 2 – 3 months of coming onto the market.
Most tenants are demanding a NBS (new building standard) minimum seismic rating of 70% NBS when seeking office options.
Despite 2 new fully leased brand new buildings (newly occupied in 2018/2019), being the new Deloittes Building (20 Customhouse Quay) and the PWC Centre (Site 10 – Waterfront), the market remains tight, particularly in the sub 300 square metre range.
Another trend emerging in the market is that developers encouraged by rising residential rental rates are trying to source C grade office buildings to convert to a student accommodation use thus taking more office space out of the market. At least 4, possibly more were coverted from office to residential in 2018 in the Te Aro area. Several other office buildings have been ear marked for residential in 2019.
Quality office suites in the CBD are now leasing at rentals in the $450 – $550 per square metre per annum range.
Landlords are now offering less incentives than before and a 3 year lease may include one month’s rent free (for set up purposes etc) but not necessarily 3 months rent free which was the starting point for most negotiations pre the 14th November 2016 earthquake. Incentives (rent free and/or contributions to fit out) are still available but landlords are not as generous as they were in the past.
A further change in the market is some landlords granting an office fit out contribution rather than handling and paying for the entire fit out themselves. This de risks the landlord’s exposure in any leasing deal and could be a sign of the times in the the future. This means the tenant is obliged to seek out their own office interior company/consultant themselves and at times project manage their fit out – a task most tenants are not equipped to handle well.
Current average gross rentals per annum (ex gst) are $380 – $520 sqm for the Core CBD, $230 – $280 sqm for Te Aro & $240 – $300 sqm for Thorndon
Report written by Tom Burke. Owner. February 2019 (all rental figures in this report refer to gross rentals ex gst)