CBRE Survey Finds Christchurch Office Vacancy Is Back At Pre-earthquake Levels
A positive story is emerging in the Christchurch CBD office leasing market, with CBRE’s latest office vacancy survey revealing the amount of vacant space is now at or below pre-earthquake levels.
Overall CBD office vacancy, which includes both prime and secondary grade buildings, is now at 10.7% (as at December 2020), according to CBRE Research’s latest Marketview quarterly report.
This is on par with the 10.1% pre-earthquake CBD office vacancy level in 2010, and significantly less than the 16.3% vacancy recorded in 2018. Prime grade CBD office vacancy is now at 8.3%.
Suburban office vacancy is currently at 13.4%, down from the pre-earthquake long-term average of around 16%, as well as the 15.3% vacancy recorded in 2018. However, suburban vacancy is still up on post-earthquake levels (10.5% in 2014) which reflected increased occupation by displaced CBD tenants.
The reduction in vacant space in the Christchurch central business district means larger office tenants looking to move into the CBD, or shift to alternative premises within the CBD, are now facing limited choice of larger floor plate spaces available, according to CBRE’s Christchurch office leasing team.
Adam Wallis, CBRE Christchurch office leasing broker, says the reduction in prime grade CBD vacancy means there are few options for businesses which are ready to move into the CBD, as large-format, open-plan office floors suitable for bigger tenants are now harder to come by.
“Looking at floor plates over 1000 square metres in the central business district, we’re now down to the last handful of available spaces. The increasing tenant demand in the market is creating a competitive playing field for what space is actually available for immediate occupancy. This is giving landlords the upper hand, with rents creeping up and tenant incentives on quality A-grade buildings starting to decrease,” he says.
Mitchell Wallace, CBRE Christchurch office leasing broker, says the limited vacancy is also expected to affect a number of other tenants which still occupy suburban offices and have lease expiries coming up in the next one to three years.
“There is a number of larger occupiers outside the CBD which don’t have an immediate mandate to move right now, but as these expiries approach, they will be looking to secure prime CBD premises. This will put further pressure on CBD office supply,” Wallace says.
“Conversely, we are also seeing some very high-quality suburban stock, such as the IAG building at 14 Show Place, being offered to the market at a competitive rate as a number of national organisations look to right-size in the post-Covid world.”
Tim Rookes, managing director of CBRE Christchurch, says this trend of positive absorption will eventually trigger the next phase of development, following the post-earthquake building boom which plateaued in 2016-2017.
“With only select pockets of space left suitable for larger occupiers, tenants wanting large, efficient floor plates will be the catalyst for the next wave of new office building development,” he says.
“An ironic challenge for the city is the scarcity of key development sites, and it is at the discretion of a select number of owners to kick-start the developments, with the majority held by offshore parties.”
Over 2020, there was only a modest increase in the total amount of office space in Christchurch, according to the Marketview report.
The new 7,200sqm Spark Square building, on Cathedral Square, took the total amount of CBD office stock monitored by CBRE Research to just over 280,000sqm – about 72% of the size of the market at the end of 2010. 75% of that is prime quality, new office space, which is attracting increased demand from both occupiers and investors.
Rents remained stable in last six months of 2020, in contrast to Auckland and Wellington where net effective office rents fell as a result of increased incentives provided by landlords facing sizeable vacancies due to the effect of Covid-19.