Commercial vacancies ‘not bad’ at 20pc
The central Christchurch office glut isn’t as bad as anticipated a leading valuer says - but there is still about 20 hectares of vacant uncommitted commercial land.
Colliers International valuation director in Christchurch, Gary Sellars, gave his annual market presentation revealing the vacancy rate in new office buildings was 20 per cent, down from 23 per cent last year.
However the central city is peppered with empty sections where there are no development plans, including east of Victoria Square on Armagh St along the Avon River, and large pockets in and near Cathedral Square.
There are also large swathes of empty land designated for an uncertain development timeframe such as east of Manchester St where Fletchers is due to build apartment buildings.
The focus of Sellars’ report was on vacancies in completed or nearcompleted buildings.
He said there were many similarities with the early 1990s and it will take up to 10 years for rents to rise again and all the space to be absorbed.
The vacancy rate in 1993 was 30 per cent following the sharemarket and property collapses of the late 1980s, reducing to 10 per cent by 2005.
Currently, the lowest vacancies were in the first post-earthquake completed buildings on Durham St, with in the central core around Cathederal Square south to Lichfield St.
The southern end towards Moorhouse Ave had the biggest vacancy at 30.1 per cent.
‘‘We are projecting central business district office occupancy will slowly improve. The new leasing comprises a mix of tenants relocating to newer and better buildings and some moving back from the suburbs.
‘‘I think there’s a perception out there that everyone is moving to the central city and the suburbs are being decimated but that’s not the case.
‘‘It’s more focused on a larger proportion of tenants moving around within the central city.’’
Sellars has been producing the report since 1993 and last night presented the findings at a Property Council of New Zealand function in Christchurch.
There was 347,497 square metres of office space overall in the CBD, projected to rise to 356,403 sqm in 2018.
This compares with 446,000 sqm in 2010.
In the suburbs there was 233,000 sqm of office space with overall vacancy currently at 17.3 per cent.
The largest vacancy was in Riccarton at 23.2 per cent, followed by Addington at 17.3 per cent, and Burnside on 14.1 per cent.
‘‘I think everyone thought that Burnside, in particular, was being decimated but it’s actually not. Looking ahead, vacancies are going to increase in the suburbs but not dramatically.’’
Net office rents in both the CBD and suburban areas were reducing in the face of competition from landlords trying to lease space.
Landlords were offering incentives in the form of rent holidays and contributions.
Effective rents in the central city after allowing for incentives and operating expenses were $300-$350 per square metre.
In 2012 after the earthquakes, they were $400-$425/ sqm in the few modern buildings at the time.
In the suburbs rents are sitting at $200-$280/ sqm.
Sellars said construction activity was declining as the rebuild progresses. In 2015, there was 142,507 sqm of office stock under construction. This year there is just 32,637 sqm.
From an investment perspective, the market was strong and yields generally in the 6-7 per cent range for good quality commercial and industrial properties.
Notable sales included the PwC Centre, 60 Cashel St for $49m to Asian buyers, and Duncan Cotterill Plaza at 148 Victoria St for $24m to an overseas investor. A handful of other properties sold to local syndicates
Latest tenants moving to the CBD include Public Trust in the new BNZ Centre on Hereford and Cashel Streets.
Meanwhile, Christchurch’s $92 million new central library,
Tu¯ ranga, is seeking someone to lease its ground-floor cafe´ and firstfloor espresso bar when it opens mid-next year.
About 3000 visitors are expected through Turanga’s doors every day.