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Wellington CBD Office Report | First Half 2022

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  • Overall vacancy declined over the six months to December 2021 influenced by the removal of stock for earthquake strengthening, and ongoing leasing activity,  particularly at the prime end of the market. As a result, overall vacancy fell from 6.7% to 6.0%. Total vacancy has fallen to just over 83,000 sqm the second lowest figure recorded since 2010. Prime grade vacancy has held at just 1.1%. Vacancy within the secondary sector stands at 7.5% down from 8.5% six months prior.

  • Development activity is accelerating as developers look to meet the demand for modern, environmentally sustainable offices. There is currently 83,480 sqm of new office space under construction which will lift the quality of the CBD’s inventory currently dominated by secondary quality premises. The proportion of prime grade space will rise from approximately 22% currently to just under 30%. With government and many corporate occupiers now mandating minimum environmental ratings there will be an ongoing incentive for landlords to lift quality ratings.

  • Upward pressure on rentals became increasingly apparent over the second half of 2021 with average prime gross face rents reaching $608 per sqm up from $574 a year earlier. With prime vacancy at such lows, the market is increasingly reliant on the delivery of new space to grow, which will bring higher rents in a high inflation, high construction cost, and gross rental market.

  • High demand for Wellington office assets has driven significant yield compression over recent years with average CBD prime yields, sitting at 5.5%, with a range between 4.5% and 6.75%. While increasing interest rates are likely to see yields easing, the impact will be mitigated by ongoing demand for assets in a market which provides strong fundamentals. Demand is likely to be further bolstered as a relaxation of border restrictions releases pent up demand from overseas entities.

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Wellington CBD Office Report | First Half 2022

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