Earthquakes trigger demand for premium Wgtn office space
Earthquakes trigger demand for premium Wellington office space
Last year’s shakes have sent tenants scrambling for space.
After numerous periods showing a softening in demand for commercial property, the latest vacancy survey produced by Jones Lang LaSalle shows that vacancy levels across Wellington’s office market are down to single digits for the first time since early 2011.
Net absorption for the CBD has reached the highest level since December 2007, clarifying another indicator that demonstrates positive market momentum.
Prime stock remains the tightest segment of the office market with tenants showing a clear preference for quality. Grade A vacancy is down 3% from 4.8% to 1.8%. Grade B vacancy has remained flat at 6.4% and Grade C vacancy is down to 12.2% from 16%. In contrast, Grade D vacancy has risen from 14.1% to 15.3%. This suggests office tenants who had previously deferred moving, are now looking to move away from buildings perceived to be earthquake-prone and engaging landlords for higher quality space. Tenants are seeing opportunities to secure property that not only suits their needs but also provides seismic reassurance. Low quality, structurally un-sound buildings will see vacancy rates rise.
In response, Institutions and Investors are focussed on strengthening their buildings rather than new developments. Steve Rodgers, National Director of Office Leasing for Jones Lang LaSalle says, “Major building refurbishments are re-entering the market in the Wellington area including Shamrock House and 142 Wakefield Street. Both of these properties will likely enter the market fully let having been brought up to seismically sound standards”.
Research produced by Jones Lang LaSalle shows that office vacancy over the last six months for Wellington CBD including Thorndon has fallen to 8.4% from 10%. CBD (Core and Frame) has moved down to 9.1% from 11.4%, with Frame leading the way to 6.7% from 8.4% and Core having a significant drop to 12.2% from 15% over the last six months.
A rise in occupier demand has seen decreasing vacancy levels in almost all office suburbs. Thorndon has seen the greatest decrease in vacancy and now sitting at 1.2% compared to 3.8% in the previous six month period. Te Aro is the only precinct which has seen vacancy remain more or less stable with vacancy moving up 10 basis points to 13.9%.
Earthquake prone building policies have had a significant impact on the Wellington office market over the past 12 months and investor confidence had trailed behind Auckland and Christchurch. Justin Kean, Head of Research and Consulting at Jones Lang LaSalle says “Until now there has been very little movement in Wellington, it seems the earthquakes have triggered a burst of letting. The earthquakes have strongly influenced tenants to make decisions and move towards better quality office space.”
Kean continues, “Over the last 18 months the office market has seen supply and demand largely balanced. With some positive occupier demand now beginning to manifest the next 12 months should see landlords able to excerpt pressure on tenants during the negotiation of new leases.
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, especially over the short term before any government retrenchment is fully felt in the market.
Jones Lang LaSalle currently survey around 1.2 million square metres of office space in the Thorndon, Harbour Quays, CBD core and Te Aro precincts and the Wellington office continues to expand.