Wellingtons growth story continues fuelled by demand for prime office space
Wellington’s growth story continues fuelled by demand for prime office space
| 2 December 2018
High demand for quality space across sectors and strong economic confidence points to growth
The commercial property market in the capital continues to run hot mainly led by a strong demand in the office and industrial sectors, according to latest research by international real estate services agency, CBRE.
The Marketview report confirms capital value growth was 6.8% on average for the past two quarters with further growth expected until the end of the year and into 2019.
Transaction volumes in the first half of 2018 totalled $426 million as 13 properties over $5 million changed hands which is more than the previous half yearly period. The upper end of market being especially active with three sales above $50 million.
At 55% of market volume – institutions were the most prominent purchasers with overseas parties making up 48% of purchases and on the vendor side institutions again dominate, accounting for 57% of the market.
Senior Research Analyst for CBRE, Richard Carr says elevated investment levels are expected to continue due to relatively high returns as well as forecast rental growth in prime office.
“We’re still seeing a supply imbalance in the office market following the Kaikoura quakes in 2016 but what’s interesting is that we actually now have more prime stock than pre-quake levels, and the demand is all about a clear shift in occupier preference for higher quality space.
“Adding to this, the Government continues to be particularly active as it looks to address a shortage of office space in the wake of 2016 and an ongoing expansion of the public sector. And while there’s currently 100,000 m2 of new development projects circulating there’s no confirmed new builds.”
The report confirms prime vacancy continues at historically low rates currently at 0.1% with overall office vacancy rates increasing slightly to 7.6% in June.
Sustained rental growth in prime is expected to continue with net effective rental rates increasing by 9.6% in the prime market in the first half of 2018 and 1.7% in secondary. The report noting however that the considerable six months increase in prime rents is largely due to natural growth as the inclusion of two new premium buildings into the market.
Prime office market yields firmed 23 basis points in the first half of the year and secondary market by 17 basis points.
In the industrial market, land values continue to rise and are currently sitting at $373 m2, a 2.2% increase in first 6 months of 2018. The report indicating that geography and location continue to underpin values, with strong increases in sought after locations such as Ngauranga Gorge and Seaview. Porirua land values are expected to pick up too in due course with the major road infrastructure project Transmission Gully due to be completed in 2020.
In the retail sector, sales year on year appear to be growing, reaching $8.9 billion in past 12 months; a 2.3% increase compared to last year. While there’s been slowing in the first half of 2018 this is expected to pick up in next quarter flowing on from strong performance of the housing market.
While prime retail rents are declining as competition for space is muted in the CBD, sites with the right location and right floor configuration are still attracting interest from retailers willing to pay considerably more for these sites, notes the report.
Carr says heading towards the end of 2018 market conditions are proving to be positive in the capital.
“At a time when majority of markets in Australasia are cooling off with rental growth plateauing and yields stabilising, Wellington still presents a very compelling story for investment. While substantial amount of development work in pipeline, minimal speculative work is expected to occur which will see vacancy levels remaining low for foreseeable future.”
“High yield and long WALT rental growth are driving investors along with the prime rental forecast which is proving to be countercyclical and attractive to those seeking wide income returns to borrowing rates.”
“As a result, investor demand remains elevated with high bid volumes for quality stock highlighting strong market liquidity for prime assets as illustrated by this year’s purchase of the Spark Central and HSBC Tower. When the market does cool it is retail expected to stabilise first, followed by industrial but office growth is expected to carry on into 2020.”
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ABOUT CBRE GROUP, INC.
CBRE Group, Inc. (NYSE:CBRE), 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 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 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.