New prime stock key to meeting demand across all sectors
Low vacancy continued through the third quarter, with occupiers looking to move up the grade spectrum facing minimal options. Projects currently in the pipeline should alleviate a portion of this pent-up demand over the coming quarters, with notable examples including 8 Willis Street and 10 Brandon Street. The average gross prime rental rate rose to $575 p/sqm over the quarter. In the secondary market, low NBS ratings have created a ceiling to demand as occupiers are reluctant to use low-rated space. The secondary gross rental rate now sits at $345 p/sqm.
Investors remain interested in high quality tenanted buildings with good NBS ratings. Prime and secondary yields both firmed over the quarter to 6.6% and 8.9% respectively.
High demand, combined with a limited supply of quality stock has seen an increasing number of industrial occupiers settle for secondary assets. With geographical constraints, skilled and unskilled labour shortages and rising construction costs continuing to restrict supply, demand is forecast to remain stable into the foreseeable future. Rental rates have continued upwards. The average prime rate now sits at $148 p/sqm, while secondary rents rose to an average of $100 p/sqm over the quarter. Prime and secondary yields are at 7.38% and 8.75% respectively.
The recent introduction of new international retailers into Auckland could be a portent for Wellington into 2020 and beyond. If successful in entering NZ’s largest market, Wellington could be the natural next port of call for many of these retailers. One prominent international retailer to begin trading recently is Taco Bell, which is already planning large scale expansion.
Demand coupled with limited new supply and low vacancy has kept rents stable throughout key retail districts. Ground frontage space on Lambton Quay and Willis Street held at $2,425 p/sqm and $1,400 p/sqm respectively. Secondary CBD rates also held firm at $775 p/sqm. Around 5,000 sqm of new stock is set to enter the market by mid-2020. Notable developments due to complete next year include 16-20 Willis Street, and the Old Farmers Building at 94-106 Cuba Street.
Yields have remained largely unchanged over the quarter, with the average prime and secondary yields sitting at 7.13% and 9.75% respectively.