With a reduction in vacancy and rental pressure continuing to increase in the Wellington commercial property market, elevated occupier demand is expected to underpin a strong period of growth for the rest of 2017, according to latest research published by CBRE.
CBRE’s Wellington Viewpoint report reveals office yields have firmed 18 basis points year on year for the first quarter of the office sector, retail 10 basis points and industrial 35 basis points.
In the office sector in particular, overall vacancy fell to 7.9% and prime office to just 1.0%. Leasing in the wake of last year’s Kaikoura earthquake was seen as being a large part of this although some leases were secured pre-earthquake.
Despite the adverse impacts from the quake, the report confirms there was still a total of $207 million in transactions over $5 million over the six months in the second half of last year.
Richard Carr Research Analyst from CBRE Wellington says with rental rates in both the primary and secondary office market having increased in the first quarter of 2017, due to the lower vacancy rates, investor appetite has well and truly returned after hesitance following the November earthquake.
“Office market is desperate for higher quality stock than what is available. Elevated investment levels are expected to continue in Wellington from both domestic and international sources, due to the relatively high returns compared to Auckland. While credit has become difficult to acquire, there is still plenty of liquidity in the market which is looking obtain quality assets.”
In the industrial sector, land values rose to a record $293 m2 in the last six months, one of the highest values since the GFC. At the same time vacancy fell from 7.9% to 7.0% in the year to December 2016. Industrial rents continue to rise, prime by 16.9% and secondary 23.6% in the past years.
Carr says as expected low vacancy rate accompanied by rising rent are also supporting development agendas.
“Ongoing industrial demand alludes to further rental increases in 2017. These have been concentrated in the lower end of the market and as a result the rental range between the highest quality stock and the lowest quality stock is tightening. This compression will also add to the demand for quality space as the rental variance does not incentivize lower quality buildings as much.”
The retail market in Wellington is also continuing to attract new development according to the report despite rental plateauing in the last six months, noting new boutique retail stores on the corners of Manners and Victoria streets are underway expected to open by the third quarter of this year.
Despite the resurgence Carr says from an occupier perspective there are ongoing consequences from the earthquake such as tenant relocations to high NBS space which have not been completely resolved.
“Some owners have divergent views regarding the performance and conditions of building. This has caused some tenants to relocate from existing occupancies while still being contractually bound to that space has provided downward pressure on city wide office vacancy.”
He says the credit limitations posed by the financial sector may stem new build development putting the focus on refurbishment of existing spaces.
“Re-purposing has been common throughout the region, with the conversion of industrial stock to retail and low quality office to the residential market. It is expected that this will continue to be evident in 2017.”
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The Company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
