Wellington office vacancy highest in 20 years
Wellington's office vacancy rate has shot up to the highest level it has been in nearly two decades.
Colliers International's latest New Zealand CBD office report says the Wellington vacancy rate increased to 14.9 per cent in June.
This was up from 10 per cent in June last year and it was now at its highest level since June 1995.
The agency says it monitors over 1.6 million square metres of office space across the Thorndon, Harbour Quays, the CBD core and Te Aro precincts.
''Vacancy in all the precincts has increases significantly by between 23.1 per cent and 7.7 per cent in the past 12 months.
"Thorndon, normally a much better performer than other precincts, had the largest increase of 7.7 per cent.
"The 240,000 square meters of vacant space in Wellington CBD is predominantly in the core precinct, accounting for 42.5 per cent of the total vacant office space."
The vacancy rate in prime office buildings crept up to 4.6 per cent. This included seven full floors.
In contrast the vacancy rate in secondary office space, which accounts for 81 per cent of the city's office stock, increased to 17.3 per cent.
If low grade offices are removed from the market, as expected, the market could swing in favour of landlords or prime and better quality buildings.
Earthquake prone building policies have had a profound effect on the Wellington office market over the past 12 months and investor confidence had lagged behind Auckland and Christchurch.
''Leasing activity has remained firm, influenced by a growing number of office tenants looking to move away from buildings perceived to be earthquake-prone.
''Improvements in prime rentals have been more stable over the past year and the rise in insurance costs has eroded any growth in rental return by landlords.
''Adding to Wellington's woes is the curtailed growth in public sector spending and staffing levels as the government aims to streamline various departments and promote more efficient use of space.
''On the positive side, Wellington is further through the seismic evaluation process than anywhere else and the removal of stock deemed uneconomic to strengthen will significantly boost the performance of modern prime quality office investments.''
Institutions and investors were focussed on strengthening their buildings rather than new developments.
''For example Kiwi Income Property Trust is spending $35 million on the Majestic Centre, while Westpac House and the former Central police station are undergoing refurbishment and structural upgrades with completion due early next year.
''The last major office development in the CBD was The Wellington Company's Telecom Central, which added around 26,000sqm in 2011. We anticipate a resumption of CBD development activity around 2014.''
Auckland property owners fared better than their Wellington counterparts.
Colliers reported the Auckland CBD vacancy rate fell from 12.2 per cent in June last year to 10.9 per cent this year.
Prime rentals in the city were forecast to rise 3.5 per cent in the next 12 months.
Auckland's economic climate was also positive enough to trigger a small number of new projects - most of them around the fringe of the CBD.
The first CBD office development to be completed this year was AECOM's new green star headquarters in Quay Park.
The ANZ Centre was undergoing a $76m refurbishment. The city's largest vacant site at 106 Albert St had been sold by Dae Ju Housing to New Development Group for $53m, raising the possibility of a new hotel development. The site, which had been vacant for many years, had been used recently as a carpark.
The report noted that the Christchurch recovery plan would halve the size of the city's CBD to 40 hectares.
''Building height will be kept to a maximum of 28m which translates to seven storeys.''
About 840 properties would need to be purchased to establish the new frames and while landowners would no doubt debate compensation issues, the plan had been well received by the private and government sectors who were keen to move back into the CBD.
''Unfortunately for tenants, they will have to pay a true market rent if developers and investors are to justify development and to provide them with quality accommodation. Currently there is virtually no office vacancy inside or outside the CBD in Christchurch.''
- © Fairfax NZ News
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