Tenants want seismic tick
Nearly five hectares of Wellington CBD office was emptied out in the last half of 2013, according to CBRE's latest office Marketview research.
The real estate agency's researchers report the overall office supply in Wellington CBD fell by 47,764 square metres to 1,470,757 sqm as buildings were vacated and withdrawn from the market.
These include the quake-prone Greater Wellington Regional Council building in Wakefield St and BP House, while other buildings vacated for strengthening and refurbishment include The Thorndon Centre, Clemenger and Hope Gibbons buildings.
Despite this, the CBD office vacancy rate fell 1.4 per cent to 9.6 per cent.
The agency said there was a net absorption figure of -25,404 sqm - the equivalent of a major office tower.
This was partially the result of tenants looking to make more efficient use of space when they relocated.
CBRE's Wellington research analyst Iain Shaw said that although vacancy rates had fallen they were likely to rise again after buildings were refurbished and made available for lease.
Poorer grade secondary office stock was likely to bear the brunt of this while prime stock would hold up.
Shaw said Wellington was a highly differentiated market.
"Premium grade stock remains virtually fully leased, although some sub-lease opportunities are available.
"At the same time, grade A stock has seen a vacancy reduction of 2.1 per cent to 1.6 per cent, primarily as a result of the vacant stock within State Insurance Tower becoming tenanted.
"Additionally, whilst the vacancy rate grew in the Thorndon and Te Aro precincts, the CBD core experienced a 3.1 per cent reduction.
"This is a combination of previously vacant stock within BP House being withdrawn, alongside significant space take-up being recorded in State Insurance Tower and 80 The Terrace.
"The longer-term outlook of rising vacancy within Wellington office space will be underpinned by the twin factors of government rationalisation and refurbishment completions.
"We believe that overall vacancy is likely to increase over the longer term, caused by central government agencies vacating a number of tenancies around the city as part of ongoing centralisation, coupled with supply increases as withdrawn stock returns to the market," said Shaw.
CBRE's national director of office services Matt Hince said the availability of good quality, seismically acceptable space would remain tight in the medium term. "The last 18 months have seen a surge in leasing activity as tenants relocated from inferior buildings, particularly those with seismic issues.
"This flight to quality has resulted in an immediate shortage of decent options for mid to large-sized tenants seeking space for occupation over the next few years," Hince said.
"Whilst there is a limited number of potential new developments in the supply pipeline, the amount of better quality space is likely to increase in the longer term as a result of refurbished buildings being returned to the market at a higher-quality standard.
"D grade stock is now sitting at a vacancy of 16.1 per cent, with C grade not fairing much better.
"This secondary supply is likely to remain fluid as buildings are withdrawn and then returned to stock in better condition as landlords face the reality that tenants will no longer lease space in low-seismic-rated buildings.
"Stock that returns to the market in an improved state will provide more and better options for organisations not seeking prime buildings.
"It could also create opportunities for organisations occupying prime grade property to save on costs by moving to a newly refurbished secondary space."
The Dominion Post