Wellington Office Market Report
Tight tenancy market prevails
A tight tenancy market prevails at the moment with no let up in sight until late 2018 at the earliest.
Recent research reports point to the vacancy rate in the CBD to be around the 7.5% mark which is the lowest for a number of years.
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 2 – 3 months of coming onto the market.
The existing tight market has been alleviated slightly by 2 new fully leased buildings coming on stream being the new Deloittes Building (20 Customhouse Quay) and the PWC Centre (Site 10 – Waterfront). The tenants moving into these 2 new buildings will create some back space that needs filling. However in the case of PWC, the Wellington City Council has already leased their existing space in advance, whilst the W.C.C. strengthens or make a decision regarding their existing space. Deloittes are coming out of 4 buildings in the CBD and AIG, also moving to 20 Customhouse Quay, will leave behind several floors in the State Insurance Tower. Nonetheless the majority of the vacant space being created will have an area of more than 500 sqm (which the landlord will not split) and so it will do little to alleviate the current shortage of affordable smaller tenancies.
Another trend emerging in the market is that developers encouraged by rising residential rental rates are trying to source C grade office buildings to convert to a student accommodation use thus taking more office space out of the market. A recent example of this is the sale of ComSmart House (approx. 2,500 sqm) at 53 Boulcott Streeet to Ian Cassels a well known Wellington property developer. Other recent examples are the sale of 195 Willis St (Freemasons House) and 203-209 Willis St(Southmark House) both to be converted from office to residential by The Wellington Company (Ian Cassels)
An indication where rentals are heading in the CBD for good air conditioned space is the fact that the vast majority of all the current vacancies in Robert Jones Holding’s buildings at the moment ( 15 vacant tenancies in 9 of their buildings) have the asking gross rental at over $400 per square metre plus gst per annum.
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. Incentives (rent free and/or contributions to fit out) are still available but landlords are not so generous as they were in the past.
Current average rentals per annum ex gst are $360 – $470 sqm for the Core CBD, $230 – $280 sqm for Te Aro & $230 – $280 sqm for Thorndon
Report written by Tom Burke. Owner. October 2018