The positive story in the Christchurch CBD office leasing market continues, with CBRE’s latest office vacancy survey revealing the amount of empty office space is now half what it was in 2020.
Total CBD office property vacancy in Christchurch dropped to 5.4% in December 2021, down from the 10.6% recorded in December 2020. The amount of vacant office space shrank by 14,734 sqm over the year, representing a 49% reduction in vacancy. The trend looks set to continue, with CBRE forecasting vacancy could sink as low as 4.5% in its upcoming June 2022 survey.
Christchurch CBD office vacancy is now well below the pre-earthquake level of 10.1% recorded in 2010, and dramatically lower than the 16.3% vacancy recorded in 2018, following the opening of several major new office buildings constructed after the earthquakes.
Tim Rookes, managing director of CBRE’s Christchurch office, says the ongoing squeeze on CBD office space exacerbates the challenge for larger office occupiers looking to expand or move.
“We’re now approaching a natural decision-making point in the leasing cycle for many occupiers in the CBD. Many major tenants have upcoming lease expiries which may prompt them to consider their options, while developers also have a strong opportunity to press ahead with plans for new building projects,” he says.
“Large-format, open-plan office floors suitable for bigger tenants are now extremely hard to come by. The availability of floor plates of over 1000 square metres in the central business district is severely restricted and the increasing tenant demand in the market is heating up the competition for the limited space that is available for immediate occupancy.”
The same tightening in the market also affects smaller occupiers acutely, causing strong competition between tenants for high quality spaces, Rookes says.
“Given the low availability of large floor plates, landlords with larger vacancies are now more comfortable waiting for a tenant than they have been in recent years. This has significantly reduced appetite for splitting floor plates, effectively locking small and medium sized tenants out of some locations.
“The ‘goldilocks’ size for Christchurch tenants is typically between 300 and 500 square metres and in key precincts like the CBD core or West End, you could almost count the number of buildings with availabilities of that size on one hand.”
This is giving landlords the upper hand, with rents on the increase and tenant incentives on quality A-grade buildings reducing significantly. Rent for prime CBD office buildings increased more than 15% to $347 a square metre over 2021.
Covid has also had a lower impact on the Christchurch CBD leasing market compared with Auckland and Wellington, says Rookes.
“A unique characteristic of Christchurch is that our CBD office market is not suffering Covid-related disruption to the same extent as the other main centres. Because we are not generally a location for national head offices, the office size requirements of tenants in the Christchurch CBD tends to be comparatively smaller, meaning the impact of working from home has not been at a level that has prompted a large-scale drive towards subleasing excess space.”
The favourable conditions for leasing new office buildings means some planned building projects that have been offered to the market have had good pre-commitment already, while more owners of existing buildings are looking at refurbishing them into high-quality office space, he says.
“Until recently, proactive owners were considering repositioning strategies such as conversion of offices to hotels. However we’re now seeing almost the opposite trend where owners now consider refurbishment into contemporary office space a high-value proposition to capitalise on the shortage of floor space in the market. Refurbishment opportunities can be completed in a much a shorter time frame and offered to the current supply-starved market much sooner – an option we may see emerging.”
No new office space was added to the Christchurch CBD office market in the second half of 2021, while at the same time, some smaller ground floor offices were converted to retail, resulting in the loss of around 900sqm of office space, according to CBRE Research.
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