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Wellington Office Market Report
Uncertainty continues to reign.
Covid – 19
The office leasing market continues to battle on in these uncertain times and is certainly in better shape than its retail cousin which is definitely struggling.
Social distancing seems to be optional in the CBD whilst people appear to doing the right thing on public transport – buses and trains – masking up and keeping to every 2nd seat. .
Government leases 45% of office space area in the CBD and the government office workers account for approximately 50% of Wellington City workers. Street talk suggests a large number of these workers are still working from home for some or all the week which is having a distinct effect on the vibrancy of the CBD. Employers seem to have reconciled with employees over the “trust” issue of working from home especially in “measurable” jobs and will be looking to reduce space in a lot of cases when their current lease expires.
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 a total of 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/February. It’s a fresh start and this time around, because of the uncertain times, we need to put in an extra effort along with innovative thinking, 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. September 7th 2020 (all rental figures in this report refer to gross rentals ex gst)