Article
Improving vacancy on medium-term horizon as supply of new Wellington CBD office space slows
2025 will be a pivotal year for the Wellington CBD office market, with an influx of space in newly built and refurbished buildings due to enter the market before the current development cycle winds down.
December 2, 2024
Media Contact
Dan Scott
Marketing and Pitch Director, New Zealand
More than 90,000 square metres of new and refurbished office space is under development, with most due to be completed between late 2024 and into 2025. This signals the end of the development cycle which began following the 2016 Kaikōura earthquake.
CBRE Research’s November 2024 Wellington CBD Office Supply and Demand Outlook report outlines the impact the new supply will have on the prime end of the market.
Zoltan Moricz, Executive Director and Head of Research at CBRE, said while an improvement is on the horizon, the additional space is expected to put further near-term upward pressure on CBD office vacancy rates. Prime grade vacancy forecast to peak at around 7% in 2025.
“The volume of office space entering the market is significant and with tenant pre-commitment only accounting for around 60% of the upcoming new and refurbished space, office vacancy will remain at historically elevated levels through 2025.”
However, we are likely passing through the demand trough brought on by public sector job cuts in Wellington and high interest rates, said Jorge Chang Urrea, CBRE Research Manager.
“Vacancy pressure will dissipate once the supply cycle moderates beyond 2026 and demand normalises in the CBD office market.”
Prime vacancy is forecast to reduce to below 4% by 2028, the report states.
Of the 90,000sqm of additional office space entering the market in 2024 and 2025, three are refurbishment projects that have been completed this year, contributing around 25,000sqm of new office space between them.
The largest is Bowen House, redeveloped by Precinct Properties and providing around 13,300sqm of A-grade space. The remaining two refurbishment projects are 126 Lambton Quay and 23 Kate Sheppard Place (Environment House).
A further six developments are expected to add around 50,000sqm of new supply to the Wellington CBD office market in 2025. The largest is Precinct’s 11 level, 19,000sqm premium-grade new development at 61 Molesworth Street. The other five are refurbishment projects, of which the biggest are 80 The Terrace (10,600sqm) and 13-27 Manners Street (9,000sqm).
Beyond 2025, four office developments are expected between 2026 and 2028, adding close to 21,000sqm in 2026 and potentially around 25,000sqm in the following two years. None of these projects currently have tenant pre-commitment and their progression may depend on securing tenants.
Matt Hince, Office Leasing Director at CBRE, said that ongoing positive occupier demand for high-quality new or refurbished space is a positive sign for longer-term improvement in the vacancy rate.
“We anticipate a relatively quick recovery in the premium and A-grade end of the market once current pressures subside. The demand for high-quality office space in prime locations remains strong, with the flight to quality trend continuing among office occupiers.”
CBRE Research’s analysis of office occupier strategies also points to an active leasing market ahead. According to the CBRE 2024 New Zealand Office Occupier Survey, 52% of Wellington office occupiers plan to relocate in the next two to three years.
The primary driver for relocation is the pursuit of better quality space, followed by improved sustainability and enhanced seismic performance, Hince said.
“Wellington occupiers prioritise both location and building-specific attributes when considering office locations. Occupiers are highly discerning when it comes to office space, with attractive working environments in good locations essential for attracting staff back into the office post Covid. Locations with good public transport links and a wide range of urban amenities nearby are high on the priority list.”
These occupier preferences will manifest in high absorption levels for the ‘right’ types and locations of office space, resulting in a relatively quick recovery in the premium end of the market once economic and public sector demand pressures dissipate, he said.
CBRE Research’s November 2024 Wellington CBD Office Supply and Demand Outlook report outlines the impact the new supply will have on the prime end of the market.
Zoltan Moricz, Executive Director and Head of Research at CBRE, said while an improvement is on the horizon, the additional space is expected to put further near-term upward pressure on CBD office vacancy rates. Prime grade vacancy forecast to peak at around 7% in 2025.
“The volume of office space entering the market is significant and with tenant pre-commitment only accounting for around 60% of the upcoming new and refurbished space, office vacancy will remain at historically elevated levels through 2025.”
However, we are likely passing through the demand trough brought on by public sector job cuts in Wellington and high interest rates, said Jorge Chang Urrea, CBRE Research Manager.
“Vacancy pressure will dissipate once the supply cycle moderates beyond 2026 and demand normalises in the CBD office market.”
Prime vacancy is forecast to reduce to below 4% by 2028, the report states.
Of the 90,000sqm of additional office space entering the market in 2024 and 2025, three are refurbishment projects that have been completed this year, contributing around 25,000sqm of new office space between them.
The largest is Bowen House, redeveloped by Precinct Properties and providing around 13,300sqm of A-grade space. The remaining two refurbishment projects are 126 Lambton Quay and 23 Kate Sheppard Place (Environment House).
A further six developments are expected to add around 50,000sqm of new supply to the Wellington CBD office market in 2025. The largest is Precinct’s 11 level, 19,000sqm premium-grade new development at 61 Molesworth Street. The other five are refurbishment projects, of which the biggest are 80 The Terrace (10,600sqm) and 13-27 Manners Street (9,000sqm).
Beyond 2025, four office developments are expected between 2026 and 2028, adding close to 21,000sqm in 2026 and potentially around 25,000sqm in the following two years. None of these projects currently have tenant pre-commitment and their progression may depend on securing tenants.
Matt Hince, Office Leasing Director at CBRE, said that ongoing positive occupier demand for high-quality new or refurbished space is a positive sign for longer-term improvement in the vacancy rate.
“We anticipate a relatively quick recovery in the premium and A-grade end of the market once current pressures subside. The demand for high-quality office space in prime locations remains strong, with the flight to quality trend continuing among office occupiers.”
CBRE Research’s analysis of office occupier strategies also points to an active leasing market ahead. According to the CBRE 2024 New Zealand Office Occupier Survey, 52% of Wellington office occupiers plan to relocate in the next two to three years.
The primary driver for relocation is the pursuit of better quality space, followed by improved sustainability and enhanced seismic performance, Hince said.
“Wellington occupiers prioritise both location and building-specific attributes when considering office locations. Occupiers are highly discerning when it comes to office space, with attractive working environments in good locations essential for attracting staff back into the office post Covid. Locations with good public transport links and a wide range of urban amenities nearby are high on the priority list.”
These occupier preferences will manifest in high absorption levels for the ‘right’ types and locations of office space, resulting in a relatively quick recovery in the premium end of the market once economic and public sector demand pressures dissipate, he said.