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Wellington Office Market Report

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Winter is coming 

Corona Virus (Covid 19) –  With the advent of the Corona Virus (Covid-19) the landscape has certainly changed overnight. However the traditional reasons for most tenants to lease an office (they want to downsize (have too much space) or want more space (they are running out of space where they are) remain. Whilst there is a definite trend of more office workers leaving the office to work at home, most tenants in these cases will retain a skeleton staff on site as they have an ongoing lease situation and are hopeful of getting back to normal by year end. In some cases tenants are locking off their floor and restricting all visitor access and deliveries and visitors are met on the ground floor after phoning the tenant concerned. No doubt further changes to normal office  practices will emerge in the coming months including reducing the number of meeting with outsiders (using skype instead) and restricting travel. Tenants  who deal in the hospitality, event management and tourism industries and those  associated with these industries are likely to be seriously affected and may look to scale back their operations and try to sublease their premises for the remaining lease period.  Tenants in one person offices or co-sharing spaces are likely to move home if they can manage their business from there. 

Vacancy Rates & Office Trends – The CBD vacancy rate is now below 6% and new listings are few, as existing tenants bite the bullet and renew where they are despite rising rents. The office market continues to tighten and tenants will be facing a limited range of options and rising rents in 2020. 

Most new stock of a reasonable quality and with a good seismic rating is leasing within 1 – 3 months of coming onto the market. Virtually all tenants are now requiring a NBS (new building standard) minimum seismic rating of 70% NBS when seeking office options. Quality office suites in the CBD are now leasing at rentals in the $600 + per square metre per annum range and some are leasing off the plans (i.e) before they are built. 

Robert Jones Holdings Ltd (RJH) who have 15 office buildings in the CBD and dominate the quality office market have no current vacancies at their moment and limited vacancies coming through in the next 2 – 3 months. 

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.

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. March 2020 (all rental figures in this report refer to gross rentals ex gst)