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Wellington Office Market Report
low vacancy rate & more seismic issues
Market Review – A tight office tenancy market prevails at the moment with no let up in sight. Recent research reports indicates a vacancy rate in the CBD to be around the 6% mark which is the lowest for a number of years. Judging by the amount of leasing activity in recent weeks, this figure is heading towards 5% rapidly.
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 1 – 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.
The market remains tight, particularly in the sub 300 square metre range. Most tenancies are open plan with a meeting room or board room with maybe 1 or 2 offices at times. If you were looking for an open plan tenancy woth 4 offices or more in the CBD under 250 sqm at the moment there would be 3 options for you to consider. Vacant character tenancies (brick walls, wooden flooring etc are extremely hard to locate in the CBD.
Quality office suites in the CBD are now leasing at rentals in the $500 – $650+ per square metre per annum range and some are leasing off the plans (i.e) before they are built.
Incentives – 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. They are likely to offer only one month’s rent free for a 3 year deal. 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.
Seismic Issues – Wellington City Council have recently in association with new MBIE siesmic guidelines closed the Public Library for further seismic assessment. The issue appears to be that of hollowcore concrete slabs that are common in high rise office buildings and have a network of voids in them that make them lighter. This was apparently the situation in the waterfront Statistics House, that had to be demolished after the November 2016 Kaikoura earthquake. WCC have this year identified a number of CBD office buildings with possible seismic issues and and the WCC will be sending the owners a letter before the end of the year requesting further details. Details of the actual buildings will not be released until the WCC receives further details from the owners. The WCC are also currently re strengthening The Town Hall and The St James Theatre building in Courtenay Place. Wellington Railway Station and Bowen House (MP’s offices) are currently under further seismic assessment in consultation with consulting engineers.
This does not bode well for the future existence of office buildings in Wellington and could mean a completely new updated seismic standard to be required by a number of office buildings, within a certain time period, which will cause further tenant uncertainty, just when they have come to grips with the current seismic standards.
Rental Update – Current average gross rentals per annum (ex gst) are CBD core: $325 – $750 sqm. TE ARO: $240 – $350 sqm THORNDON: $240 – $350 sqm.
Report written by Tom Burke. Owner. September 2019 (all rental figures in this report refer to gross rentals ex gst)