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Wellington Office Market Report
The new normal?
Corona Virus (Covid 19)
The jury is well and truly out at this stage as to what the new normal in the office leasing market will be in the coming months..
I was walking down Lambton Quay last Monday and the atmosphere was a bit surreal with the foot traffic worst than a mid winter wet sunday. Suffice to say the poor retailers (pun intended) are doing it tough. A quick stroll down a short 2 blocks of Featherston Street revealed 5 shops shut – 2 sushi places, a chocolate shop, drycleaners & Tommy Millions pizza place. Without decent foot traffic from office workers, the small retailers in particular will struggle to survive.
Government leases 45% of office space in the CBD. Taking into account the large floor plates they occupy and the reduced area each government office worker traditionally occupies, you’re looking at 50% of the CBD office workers being government employees. The sad truth is that most of them are still working from home. The IRD was reported recently to have 90% of their 2,000 Wellington office workers to be still working from home as an example.
Non government workers are reluctant to venture into town due to factors such as spaced out public transport (buses & trains) and possibly still quite enjoying the freedoms of working from home and being able to conduct meetings via Zoom etc
Most landlords seen to have met their tenants half way through the lock down and granted their tenants one month’s rent free which is great to hear.
Companies will no doubt be re- assessing their business models and I’m picking a rigorous review will be happening in most work places as to whether they need that much office space now and who wants to work from home in the future. This should lead to a number of sub leases coming onto the market or if the timing is right, exiting leases will not be renewed and a smaller footprint will be leased. It is possible that 5% – 10% of the work force will eventually elect to stay working from home.
This will obviously have an impact on the office market and the vacancy rate might balloon to 10%. We have had vacancy rates as high as this before (sometimes higher) and the market always adjusts to suit. In this case more office buildings might be converted to residential which seems to have an insatiable appetite for more space.
Rents should definitely level out and landlords will try and hold steady as long as they can to protect the value of their buildings. Tenants expecting a few bargains are going to be disappointed.
Overall, the remaining months of the year are going to be challenging and in some ways its similar to being in January. It’s a fresh start and this time around, because of the uncertain times, we need to be extra vigilant and put our foot to the floor as soon as we resume work, if we’re expecting 2020 to be a financial success.
I expect most businesses will look to survive for the rest of the year and hope that 2021 will represent a back to normal Covit free period.
In the meantime, I wish everybody out there Good Luck and Stay Safe!
Rental Update – Current average gross rentals per annum (ex gst) are CBD core: $350 – $750 sqm. TE ARO: $240 – $370 sqm THORNDON: $240 – $350 sqm.
Report written by Tom Burke. Owner. May 30th 2020 (all rental figures in this report refer to gross rentals ex gst)