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Slow and Steady Office Leasing Market

Now approaching 2/3rd s of the year gone, the market is a bit static at the moment after a slow and steady start to the year. We are still getting an average of one new listing a day, but tenant demand has waned of late. Having a lot of listings is obviously of advantage to a tenant thinking of moving and this is making my job easier at the moment provided i can uncover enough tenants wishing to view.

In these uncertain times, smaller landlords are doing their best to retain tenants  and will often allow them to renew their leases at their existing rental or only impose a minimal percentage increase. Bigger landlords (more then 5 buildings) are looking to retain the value of their portfolio and are not that keen on “discounting” their rent. Rent holidays are that not that common but can be 1 – 3 months depending on the lease term offered.

Rents overall are slowly increasing but nowhere like they did last year.

Wellington has traditionally been a gross lease town for offices (unlike Auckland where office nett leases are the norm). Gross leases include the building operating expenses, so the rental remains the same throughout the lease term in between rent reviews.  RJH (Robert Jones Holdings Ltd) has recently started to request a nett lease from new tenants for their CBD portfolio (15 buildings+ ) and this could be a start to a change in the Wellington office market in the future. Having a nett lease enables the landlord to recuperate any increase in building operating expenses (rates, insurance etc) as part of the office rental on a yearly basis and is attractive to the landlord as they can recuperate any increase in building costs throughout  the lease term and so maintain  a certain margin of profit. Gross leases mean the landlord only catches up when the lease is renewed (usually every 3 years) and the rent review usually at the same time can be used to update the actual cost of running the building.

The drift to home is still happening with serviced or semi serviced office organisations such as Nomad & Generator still appearing to be doing a brisk business at attractive rates.

Rental Update – Current average gross rentals per annum (ex gst) are CBD core: $350 – $850m2. TE ARO: $300 – $400m2 THORNDON: $320 – $450m2.

Report by Tom Burke – Owner – Capital Realty Ltd  August 3rd 2023

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