JLL’s Q3 Vertical Vacancy Review Highlights Strong Competition For Premium Office Space Across Three Main Centres
November, 2021 – While Delta’s full legacy on the office sector remains to be seen, there is plenty of cause for optimism in our major centres, according to JLL NZ’s latest (Q3) Vertical Vacancy Review.
JLL NZ Head of Research, Gavin Read, says that changes to employee expectations and priorities, accelerated by 18 months of working through a global pandemic, have not dented business confidence. Rather, they have pushed occupiers to look for better, more collaborative and sustainable office spaces to attract and retain talent.
“This ‘flight to quality’ remains the defining characteristic of the market in Auckland and Wellington, widening the divergence between primary and secondary grade office space in terms of both vacancy and rental growth,” says Read.
“Meanwhile the upward pressure of Christchurch’s limited supply has finally resulted in the first rise in prime office rents there for two and a half years.”
Read says that although the office remains integral to businesses’ longer-term strategies, Covid will continue to cast a shadow over the investor and owner outlook for some time.
“Tenant quality and long-term business viability will be a critical focus for investors seeking to de-risk future returns.”
Please see below for some further localised comments on office sector performance through Q3 from Gavin Read. The full Q3 Vertical Vacancy Report is available for download here.
“Although prime vacancy has increased 7.5% (6000sqm) since Q1 this year, recent commitments by Deloitte [One Queen Street] and BNZ [at the current Deloitte premise at 80 Queen Street] highlight continued strong occupier demand for quality in the CBD. This is further evidenced by quarter-on-quarter rent increases of 1.3% and 1.9% respectively for Premium and A Grade space. Premium rent this last quarter rose as high as $760 per square metre.”
“Nowhere is the flight to quality clearer than at Wynyard Quarter, where prime buildings close to the waterfront continue to enjoy extremely low vacancy and strong pre-leasing activity for new builds.”
“Limited recent additions to supply and ongoing Government requirements continue to support low vacancy levels in the Capital. Even as some corporates have reduced their workspace requirements through the pandemic, much of this has been quickly absorbed by Government or private occupiers or has been withdrawn.”
“The high pre-leasing activity on much-needed new supply coming into the market in 2022/23 shows the flight to quality trend is also prevalent in Wellington. This continues to put upward pressure on rental levels, with prime gross rents reaching $613 per square metre this last quarter.”
“With vacancy rates still sitting around 5% and limited supply in the pipeline, options for tenants looking to relocate within the Christchurch prime office market remain extremely limited. After 10 successive quarters of stasis, this has finally given rise to a nominal increase in prime CBD rent, up 1.5% to $335 per square metre.”
“Encouraged in part by the short supply of investment options in Auckland and Wellington, we’re noticing increasing investor interest for well-let Christchurch office assets. One such example is Oyster Property Group’s recent acquisition of the Kathmandu Head Office at 229 Tuam Street – a 2016 build with over 10 years remaining on the current lease term.”