First lift in vacancy since quake
The amount of vacant office space in Wellington has increased for the first time since the 2016 Kaiko¯ ura earthquake, a new report has found.
CBRE’s latest Wellington survey found the overall vacancy rate in the capital’s CBD was 7.6 per cent, equating to 105,625 square metres of empty space as of June 2018.
But the amount of empty offices is nowhere near what it was before the earthquake struck.
In the wake of the November quake, with several Government offices demolished, the amount of empty office space plummeted from 180,000sqm in June 2016 to less than 100,000sqm in December 2017.
The figure increased 7649sqm in the first half of 2018.
But it’s only a slight relief from the record lows that have been reported since November 2016.
The shake-up has had an especially big effect on the supply of newer and stronger buildings, known as prime market space, with just 0.1 per cent vacant. The secondary market, which typically has lower earthquake ratings, has 10.6 per cent vacant space.
CBRE Wellington senior analyst Richard Carr said the two-tier market comes as occupiers are being more selective in wake of the 2016 quake, and are driven towards highquality and efficient buildings with elevated seismic ratings.
‘‘There’s no doubt quality is what’s wanted right now and Wellington’s two major occupier pools – public and private – have different motives for this,’’ Carr said.
‘‘For the public sector it’s very much about need, with the loss of two major buildings in the earthquake – the demolition of Defence House and Statistics House. This has resulted in a shortage of planned government space of around 25,000sqm, which will be alleviated somewhat next year with the completion of the Bowen Campus.’’
Carr said private occupiers continued to show strong preferences for high-quality accommodation, while also reducing floor area to ‘‘adopt more agile working practices’’.
He noted 20 Customhouse Quay and the PwC Centre were significant additions over the past year, but there were no significant completions expected this year in the ‘‘prime market’’.
The ongoing shortage limited options for occupiers and had started to change occupier behaviour, with more renewing leases for their current location.
The same two-tier trend was also being seen in the industrial sector, with rents increasing 4.5 per cent among primary stock while secondary stock increased by only 0.4 per cent over the same period.
However, in the retail market it was a different story, according to the report.
Rents for prime CBD stock experienced a 0.9 per cent decline over the six months to June 2018, with a rise in vacancies as some retailers closed down or relocated.
Older properties farther from Lambton Quay saw rents rise 3.8 per cent as Featherston, Cuba, and Willis streets saw a ‘‘resurgence’’.
For investors, the earthquake has only increased the worth of their office properties.
Valuations on prime office stock rose by 13.7 per cent during the 12 months to June 2018, while capital values for secondary stock rose by 3.5 per cent over the same period.
Yields on CBRE’s prime CBD basket remained relatively stable over the first half of 2018, moving from 7.31 per cent to 7.26 per cent.
CBRE Wellington managing director Matt St Amand said elevated levels of liquidity in the market suggested there would be a further increase in capital values.
‘‘The lack of vacancy has resulted in increased rents, meaning many buildings are tracking below market on income return due to pre-existing lease structures, so vendors require strong initial yields.’’