Ensuring alignment between an organisation’s growth strategy and their property requirements is vital for an optimal outcome. Property enables businesses by facilitating activity and providing environments in which people are empowered to support the growth of their business. When businesses are looking to develop and change, their workspace must evolve with them.
Currently, the Wellington office market has a historically low vacancy rate of 0.4% for Prime office buildings, being 1,755sqm over a 400,444sqm area. With limited market options for occupiers; looking further ahead allows for a wider range of options including development, refurbishment and lease expiries.
Consistent with the lack of options in the market, rental levels have seen significant increases in the past three years. In tandem, the absolute operating costs, particularly insurances, have also been placing pressure on landlords to increase rents to keep up with these costs. Depending on the structure of an occupier’s lease, these OPEX increases may have fallen on some tenants as well, however traditionally in Wellington this has been placed on the landlord due to the gross lease structure.
New development of office space in Wellington is expected to occur; however, only once a reasonable proportion of pre-commitment is reached. The timeliness of development continues to present difficulties due to a disconnect between lease expiries and the completion of new developments.
The constrained options in the market requires occupiers to be more astute in assessing their current and future property requirements and formulate a strategy to find a space which can deliver an optimal solution. Successfully predicting space requirements is particularly difficult, which is compounded when managing existing lease commitments.
With an ever-changing regulatory environment in Wellington, particularly around seismic resilience, occupiers are not only assessing the physical space, but also the landlord. Occupiers are drawn towards professionally managed space which have robust resilience, capital and occupancy long term plans.
The creation of long-term relationships with landlords can provide occupiers with more visibility and flexibility when negotiating, such as with extensions, rent reviews and area variations. These long-term relationships create value for both parties as increased WALT (lease length) in buildings provides more certainty for landlords. Property strategy continues to mature and is now crafted more holistically, with corporate occupiers looking to increase their portfolio agility. This maturity is supporting increased resilience to shocks, and flexibility for growth and contraction.
Landlords are recognising this rising demand for agility, and this is being reflected in the suite of services being provided to occupiers. It is becoming more common that an anchor location for an occupier is secured and access to additional landlord facilities such as co-working lounges and wellness centres.
A comprehensive property strategy for occupiers can increase their operating resilience and flexibility while potentially increasing space use efficiency. CBRE Research ensures that our clients are equipped with the most relevant and up-to-date information, allowing for informed decision making.
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