- The high proportion of government occupied office space in Wellington (around one-third), the resilience of the private sector demand profile and ongoing changes to total available supply due to seismic strengthening requirements have combined to keep vacancy rates relatively low over the past year. The overall vacancy rate is at 6.7%, up only marginally from the 6.4% recorded in the June-2020 survey. Prime grade vacancy remains at extremely low levels, currently at just 1.1%.
- Confidence in the future demand for office space in the city is well illustrated by the rise in development sector activity, with a number of significant projects having commenced with others confirmed and due to begin construction in the next 12 months. There is currently just under 63,500 sqm of office space under construction, representing one of the largest development pipelines in the market for a number of years. Total supply is set to increase by a further 14,000 sqm with the redevelopment of Bowen House by Precinct Properties.
- A combination of tight market conditions, the addition of new high quality space and inflation will likely lead to a resumption in rental growth in the closing quarter of the year. Gross rents face additional upward pressure from increases in operating expenses. Average prime gross face rents currently stand at $615 per sqm having held steady over the last year.
- Strong sales activity has continued with high levels of inquiry from both the development and investment sectors. Competition for assets has driven further yield compression with average prime yields now sitting at 5.4%. While interest rates are projected to rise in the short-term, given the change will likely be both incremental and limited leaves room for further yield tightening over the short term future given high levels of competition for limited stock.
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