A conversion experience
Wellington’s rental property shortage has prompted some commercial landlords to convert office blocks into apartments.
Colliers national director of research and consulting Alan McMahon said there was a critical shortage of rental accommodation in Wellington, and a shortage of high-quality office accommodation.
Office vacancy in Wellington reached a record low of 7.4 per cent in December, Colliers data showed.
Wellington’s population growth is currently running at a rate twice that of dwelling growth, according to Statistics NZ.
But while the crunch is going on most parts of the market, there are more than enough lower-grade office buildings that require earthquake strengthening or other work.
McMahon said a decision had already been made to convert some of those properties to residential use, on Willis St, Courtenay Place and Kent Tce.
An office block on Boulcott St, known as ComSmart House, is also being converted into student accommodation.
McMahon said while owneroccupiers were suspicious of buying retrofitted old office buildings, they would be suitable for investors planning to let them.
‘‘There’s a potential significant boost there to the stock of rental properties.’’
Some would be service apartments or backpacker accommodation, he said.
McMahon said if the earthquake strengthening had not been required, the buildings would have been left to continue as office blocks.
‘‘But if they have to spend money on them anyway, the owners are considering if converting them to residential use would be a better idea. In several cases the answer is yes.’’
Prime commercial rents have increased 3.9 per cent over the year in Wellington.
Data from research firm Infometrics shows Wellington’s residential rent prices increased 7.3 per cent year-on-year in November, the fastest in the region since mid2009.
The rates of increase in Upper Hutt and Wellington City hit eightand nine-year highs, of 15 per cent and 8.1 per cent a year, respectively, during the December quarter.
Property Institute chief executive Ashley Church said the cost of renting will continue to rise and would replace the cost of housing as the big issue this year.
While it was normal to see rent increases in the period following a property boom, the environment this year would be made worse as a result of several factors.
They were ‘‘the combined effect of unusually high inward migration (which has exacerbated rental demand), loan to value restrictions (which have closed investors out of the market), and Labour’s plans for capital gains taxes, ring-fenced tax losses and significant new compliance costs.’’
‘‘As a result, we’re in for big rent increases in some parts of the country over the next couple of years.’’
ComSmart House was bought by well-known developer Ian Cassels who said student accommodation in the city was extremely tight.
Cassel’s The Wellington Company bought the five-storey, 2500-square-metre building on Boulcott St for just over $3 million.
Last year developer Maurice Clark completed the conversion of the TelTower building in Willis St, marking his fourth student hostel conversion.
Added to other projects, the stock of student accommodation in the city has been boosted by an extra 1130 rooms.