Post-quake seismic issues still putting the pinch on CBD vacancies
Pressure on the Wellington central business district office sector is unlikely to lift any time soon, according to a local commercial property expert.
Colliers International executive director and office leasing specialist, Jim Pinson, says ongoing invasive seismic testing of buildings at Wellington City Council’s behest continues to expose more buildings with seismic issues.
It will also be another three to five years before any significant amount of new office space enters the market.
“There is a lot of uncertainty about the number of buildings to be removed from the office market, either temporarily through seismic strengthening work or permanently,” Pinson says.
“On the positive side, the next development cycle has advanced and there are many land owners working on new build schemes now. However these are not expected to be available for fitout until perhaps 2020 to 2023.”
In this environment, office vacancy remains acutely low following the loss of nearly 100,000sq m of office space from the market since the November 2016 earthquake.
Colliers’ post-earthquake survey showed overall office vacancy was 7.8 per cent, down from 10.5 per cent in December 2016, says Pinson.
“This represents a very serious shortage of available office space in the CBD, and a complete change of direction for the office property market where vacancy had edged up to 10.5 per cent before the earthquake.”
Demand from tenants looking to move to better-quality buildings with improved seismic resilience remains high, resulting in a tight squeeze on the central city’s office market, he says.
In addition, large national corporations are still undecided about their property requirements in the capital post-earthquake.
“Several large-scale office occupiers are still to make long term decisions about the shape of their leased portfolio in Wellington. This is adding to the uncertainty over which buildings and locations might find favour with major tenants.”
The change in direction for the CBD office market has resulted in investor confidence taking a major jump, according to Colliers’ quarterly property market confidence survey.
Immediately after the earthquake in December 2016, investor confidence in the Wellington office sector was just 19 per cent net positive. By March 2017, confidence had doubled to 39 per cent net positive, reflecting the high-demand, low-supply scenario characterising the market, Pinson says.
“We are still in a situation where tenants are finding it very difficult to find suitable office space and this is likely to continue for at least the medium term. While landlords are benefiting from being able to put the rent up in the face of such high demand, occupiers are becoming more and more frustrated at the lack of options in the central city.”
Recent CBD lease deals include 2,745sq m across three floors in the Reserve Bank of New Zealand building at 2 The Terrace (pictured above), negotiated by Colliers agent Phil Humphrey, to an as-yet unannounced tenant.
Also leased recently through Colliers were two spaces in JacksonStone House at 11 Hunter Street. Business support provider Business Central has committed to 552sq m on level seven, while Education Payroll has taken 1,771sq m across level one and part of level two.
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