Article | Creating Resilience

Commercial property activity expected to pick up from late 2023

The Wellington market is likely to remain in a ‘wait and see’ mode until late 2023. Once interest rate declines are imminent, we will likely see buyers and sellers finding a logical middle ground.

March 29, 2023

By Matthew St Amand

Wellington commercial property market moves through transition phase CBRE New Zealand

The significantly reduced transaction volumes in the Wellington commercial property market in 2022 are expected to continue throughout most of 2023, predominantly owing to the impact of interest rate increases.

This is likely to cause ongoing market inactivity until more clarity emerges on the timeline around normalisation of borrowing costs.  Once the market has confidence that interest rate declines are imminent we will likely see the bid-ask gap narrowing to a point where buyers and sellers of commercial property can find a logical middle ground.

While the market is still in a ‘wait and see’ mode, CBRE is expecting activity to pick up later this year once interest rates have hit their peak and the pathway towards rates decreasing is clearer. Property valuations are expected to continue to move in line with changing market dynamics. With high interest rates persisting, the challenge facing the market this year is acceptance of the need for valuations to continue to move more toward buy-side expectations and it is expected that transaction evidence will begin to support this.

Interest rates and inflation

Fresh inflationary headwinds create the short term risk that interest rates may climb further or remain high longer than forecast. While opinion remains divided on how quickly inflation will fall over the next few quarters, especially given the rebuild implications of recent weather events, longer term high inflation looks more firmly entrenched in New Zealand than in the US. The official cash rate is unlikely to reduce this year, but longer term rates should provide some relief to fixed mortgage rates and property cap rates before the OCR gradually starts reducing.

Investment capital

Investors’ expectations of property values moderating as a direct result of interest rate increases did not play out in 2022 and their general perception is that values still remain out of alignment with these influences across many markets in 2023. Until property values begin to reflect higher returns than in 2022, investors will continue to be cautious when looking at large acquisitions. CBRE expects this to remain the case until the third quarter of 2023.

This extended period of investor caution creates opportunities for well-capitalised local investors and well-resourced international groups who have a window of reduced competition to engage on potential transactions this year while the buy side market is still relatively illiquid. There are some compelling acquisition opportunities to be had in the first half of this year while international capital remains inactive. Despite challenges in the sector, some international capital entered the office sector in Wellington in 2022 with GIC and PAG making significant capital partnership acquistions with Precinct Properties, setting a strong precedent for other international buyers which are considering investing in the capital.

Despite the current investment caution, New Zealand is still viewed as a relatively stable destination for capital globally. This applies in particular to premium CBD office property, owing to our relatively higher rates of returning to the office compared with the US where stubbornly high rates of working from home are resulting in some high profile defaults by institutional landlords. New Zealand should continue to enjoy a position as a safe haven for international capital. In Wellington in particular, low vacancy in premium grade offices and ongoing stable demand from the government sector as well as corporate occupiers is positive for CBD office investment.

Office property market

The outlook for Wellington office property generally remains positive with continued demand from government and private sector occupiers, low vacancy and relatively high rent growth in premium grade buildings. While overall vacancy is expected to increase in 2023 as a result of new building supply leaving backfill vacancies, it is expected to settle at a modest 4% for premium offices. The increase in vacancy rates is resulting in lease incentives becoming more commonplace, especially in the secondary market, as landlords compete for tenants. This also suggests rents may be reaching a ceiling.

A notable trend is the re-emergence of subleased space becoming available within the office market. More subleasing activity indicates that tenants are beginning to rationalise and consolidate their office space requirements, which is likely to be a result of the working from home trend along with current economic conditions.

Retail property market

The Wellington retail market is going through an active period of leasing activity with a positive outlook for the coming year. The return of cruise ship visitors, the stability provided by the city’s government sector and healthy sales figures are resulting in positive demand trends.

New developments are leasing well; including Precinct Property’s highly anticipated redevelopment of the Aon Centre at 1 Willis St. The former David Jones retail space on Lambton Quay is also leasing well to a mix of national and international tenants, some of which are new to Wellington, with the ground level almost all spoken for. Willis Bond’s refurbishment of 100 Cuba St has also leased well with one space remaining.

The successful leasing of these new and upcoming developments illustrates the healthy demand for retail space in Wellington. Further indicators of the market’s health are the low overall vacancy rate (5.7% as at Q4 2022, up just 0.6% from the previous year) and high demand for space on prime strips, notably from larger Australian retailers.

CBRE is in discussions with a significant number of high profile Australian retailers, all of whom either want to increase their existing footprint in Wellington or enter the market for the first time. The leasing market is active and the general mood is optimistic, with some long-awaited stabilisation in the market and a generally confident outlook for ongoing tenant demand.


While the year ahead will be challenging for many sellers and buyers of commercial property, CBRE expects to see transactional activity increase as more clarity emerges around the expected inflationary outlook and interest rate decreases. Greater clarity on these factors and a better understanding of market risks should also encourage banks to lend more actively into into the sector, creating more opportunities for purchasers to raise debt and in turn introduce more liquidity into the market. In addition, Wellington continues to attract some of the largest real estate investors globally, attracted by our relatively stable market influenced by strong government occupation.

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