Article | Creating Resilience
Squeezing the CBD tight
Christchurch office leasing specialist Mitchell Wallace outlines what the surge in demand for CBD office space means for those seeking new premises.
August 21, 2022
We’re being contacted by more and more tenants who are approaching the end of their lease cycle and are needing to understand what options they have.
Our Christchurch office vacancy survey in December 2021 highlighted a 5.3% vacancy rate for CBD office. The most recently released figures have risen only 0.5% with the introduction of 1,600sqm building vacancy offering circa 300sqm floorplates which, given the size and location, are likely to be leased quickly.
This continually tight vacancy trend is alerting tenants who are considering their next step to the fact that the process of reviewing leases must be undertaken well in advance of lease expiry. With a general lack of availability in the CBD, competition is fierce for the limited space that is available for immediate occupancy and often these enquiring tenants are unaware of the state of the market.
The surge over the past year has been a continuation of tenants’ natural migration back into the CBD, with the accelerated rate a direct result of a large tranche of lease expiries within a short period of time. Unfortunately for tenants, this has driven demand in a way which has not been seen for some time. Rental growth and diminishing incentives are also prevalent. In short, supply is simply not keeping up with demand.
Though there is a development pipeline building, the delay of new developments coming to market is creating a bottleneck of demand. Delivery for new buildings is still a minimum of 18 months away and there is strong pre-commitment already. A small number of office refurbishments are also underway; however, it is now looking unlikely that these will be completed any sooner than the new builds.
The combination of these factors is creating a competitive market where both small and large tenants are missing out as their leases expire and space becomes scarcer. To make the best of the situation, office tenants looking to make a move in the CBD, need to be aware there are challenges when it comes to taking their next step. As experts in this sector, we have some recommendations.
Firstly, allow time to find the right solution. Organisations often underestimate the amount of time required to complete this process and are unaware of their requirements under their current lease. The standard ADLS lease requires tenants to provide notice of their intent to renew to their landlord no later than three months prior to their expiry, however this is often changed to six or nine months, depending on the size of the lease.
Bespoke leases could have an even longer period. If your required floor area is 500sqm or less, we encourage you to start engaging with the market six months ahead of that date. Larger occupiers should begin assessing their options at least 24 months ahead of their expiry to ensure development opportunities are able to be considered.
Conduct a review of your space requirement through a hybrid-working lens. While the work from home phenomenon is not as prevalent in Christchurch as other centres, it is still important to ensure you consider this as part of your floor space requirements or preferred office location. Engaging with spatial planners or other workspace consultants at this stage is particularly useful.
To help tenants find the right solution, we recommend you bring in the experts in workspace consulting and office leasing. In such a tight market you need to partner with the right people who can offer expert advice and help find you the right solution.
Our Christchurch office vacancy survey in December 2021 highlighted a 5.3% vacancy rate for CBD office. The most recently released figures have risen only 0.5% with the introduction of 1,600sqm building vacancy offering circa 300sqm floorplates which, given the size and location, are likely to be leased quickly.
This continually tight vacancy trend is alerting tenants who are considering their next step to the fact that the process of reviewing leases must be undertaken well in advance of lease expiry. With a general lack of availability in the CBD, competition is fierce for the limited space that is available for immediate occupancy and often these enquiring tenants are unaware of the state of the market.
The surge over the past year has been a continuation of tenants’ natural migration back into the CBD, with the accelerated rate a direct result of a large tranche of lease expiries within a short period of time. Unfortunately for tenants, this has driven demand in a way which has not been seen for some time. Rental growth and diminishing incentives are also prevalent. In short, supply is simply not keeping up with demand.
Though there is a development pipeline building, the delay of new developments coming to market is creating a bottleneck of demand. Delivery for new buildings is still a minimum of 18 months away and there is strong pre-commitment already. A small number of office refurbishments are also underway; however, it is now looking unlikely that these will be completed any sooner than the new builds.
The combination of these factors is creating a competitive market where both small and large tenants are missing out as their leases expire and space becomes scarcer. To make the best of the situation, office tenants looking to make a move in the CBD, need to be aware there are challenges when it comes to taking their next step. As experts in this sector, we have some recommendations.
Firstly, allow time to find the right solution. Organisations often underestimate the amount of time required to complete this process and are unaware of their requirements under their current lease. The standard ADLS lease requires tenants to provide notice of their intent to renew to their landlord no later than three months prior to their expiry, however this is often changed to six or nine months, depending on the size of the lease.
Bespoke leases could have an even longer period. If your required floor area is 500sqm or less, we encourage you to start engaging with the market six months ahead of that date. Larger occupiers should begin assessing their options at least 24 months ahead of their expiry to ensure development opportunities are able to be considered.
Conduct a review of your space requirement through a hybrid-working lens. While the work from home phenomenon is not as prevalent in Christchurch as other centres, it is still important to ensure you consider this as part of your floor space requirements or preferred office location. Engaging with spatial planners or other workspace consultants at this stage is particularly useful.
To help tenants find the right solution, we recommend you bring in the experts in workspace consulting and office leasing. In such a tight market you need to partner with the right people who can offer expert advice and help find you the right solution.