In the year since the Kaikōura earthquake, the shortage of office space in central Wellington has only got worse, new research shows.
Colliers International’s latest New Zealand Research Report found office vacancy rates continue to drop to record lows.
The shortage of office space is especially bad in the prime sector, or grade A buildings.
Colliers research manager Leo Lee said the December survey found office vacancy in Wellington’s central business district fell to 7.4 per cent, down from 10.5 per cent in November 2016, shortly before the Kaikōura earthquake.
“Demand pressures continue to grow since the loss of nearly 100,000 square metres of office space since November 2016,” he said.
“There is little relief in the prime sector with less than 300sqm, or just 0.1 per cent, of prime space available.”
Lee said the shortage was also being felt in secondary graded stock, which had only 103,147sqm available and had dipped by 3.3 per cent compared to a year ago.
“The completion of new office developments in Wellington last year totalled 38,800sqm.”
“One of the largest additions was the new Transpower building at 22 Boulcott St, which allowed the tenant to consolidate two office locations.”
But Lee questioned whether new office supply would relieve any of the demand pressure.
“The new stock has done very little to alleviate demand, and vacancy is unlikely to lift anytime soon.”
Both 20 Customhouse Quay and Willis Bond & Company’s new PricewaterhouseCoopers (PWC) Centre are expected to be completed by mid-year, adding 26,400sqm of new office space.
Lee said because the space was “pre-committed” its opening would not do much to ease demand.
Once PWC moves into its new building the Wellington City Council will rent more than 7000sqm of office space in the PWC Tower on the Terrace.
The move follows the closure of Wellington City Council’s civic administration building after the November earthquake, which saw staff split between the municipal office building next door and several other city buildings.
The average prime building increased rents 3.9 per cent in the year to December 2017.
With an office space shortage, it’s been a great time to be a landlord in the prime office market, Lee said.
Though property investment company Precinct Properties may have a different outlook.
The company’s Deloitte House was devalued by $26.1 million following structural issues found after the quake. Precinct Property’s net property income decreased by more than $14m since 2016, but once adjusted for seismic repair costs the company said its income in Wellington was flat compared to the previous year.
Despite Precinct Properties’ seismic hit, Colliers International’s latest quarterly investor confidence survey found Wellington was the only main centre to record an improvement in office investor confidence,” Lee said.
Auckland is also a tight market, with lower vacancy than Wellington.
Auckland’s central business district office vacancy increase 0.7 per cent over the last year, but it has not exceeded 6 per cent since the middle of 2015, Lee said.
Lee attributed the recent rise in vacancy rate to more prime stock becoming available in Viaduct Harbour and Victoria Quarter.
The Colliers report forecasts 60,000sqm to be completed over the next two years thanks to the completion of Auckland’s Vocus House on Sale St, the PWC Tower in Commercial Bay and One 55 Fanshawe, which is being constructed on a former Caltex petrol station site.
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