Crown tenants support city’s market
How well is Wellington’s commercial property market placed to handle the economic fallout of Covid-19? According to commercial property experts – quite well.
A high proportion of government tenants has lent some stability to the rent market, and the city’s recent price growth in other types of property also lends it some strength.
Century 21 New Zealand coowner Derryn Mayne said that in recent years Wellington’s commercial property sector has enjoyed low vacancy rates and strong demand for buildings.
‘‘A couple of contributing factors aiding Wellington include an overall shortage of office space following some demolitions after the 2016 Kaikoura earthquake,’’ she said.
Wellington was also somewhat protected by the fact it was the seat of Government, a solid tenant.
‘‘As of last year the Crown occupied 45 per cent of the office buildings in central Wellington, with some new developments designed for government tenants currently in the plans.’’
The capital had also enjoyed an ‘‘incredibly competitive’’ residential rental market over the past five years.
‘‘The city will, of course, be impacted in the coming months and years but is insulated more than others, thanks to the government sector not going anywhere.
‘‘In fact, if anything, some government departments are more likely to grow than contract in the foreseeable future, as they come under increasing pressure to respond to the country’s plight.’’
In the office market, Matthew St Amand, managing director of CBRE Wellington, agreed that having the Government and several corporates occupying a large portion of the CBD was one of the city’s defensive qualities.
‘‘The resultant stability that the Government offers a lot of the population across Wellington’’ would make it a little more resilient in terms of unemployment.
However, the office market would not be completely unaffected. Marketing campaigns were interrupted over lockdown, which would probably slow the number of office building sales over the next few months.
The other problem was that many foreign investors liked to visit their prospective purchases.
‘‘As long as the borders closed, it does limit the liquidity of buyers we can access, where foreign investors will find it quite difficult to progress their interests.’’
However, the recent sale of Pastoral House, an 18-storey office block, for $77 million during lockdown, was a ‘‘prime example of an asset that makes a lot of sense in this current climate’’.
Pastoral House, which has frontages on The Terrace and Lambton Quay, is occupied by the Ministry of Business, Innovation and Employment, which has a 15-year lease on the office accommodation.
The building was sold to Oyster Property Holdings by Precinct Properties after a significant refurbishment and upgrade.
St Amand said so far CBRE’s property management team were still receiving rents on 94 per cent of its office portfolio.
Industrial assets were probably the leading property asset class in the country, and he expected the capital’s industrial market would also hold fast.