Wellington CBD Office Supply and Demand Outlook

Key Points: 

• Post-GFC, building withdrawals permeated the Wellington CBD office market. Between 2012 and the first half of 2024, over 100 office buildings, equivalent to almost 582,000 sqm of office stock, were withdrawn. Some of these were permanent for demolishment/conversion, others temporary for strengthening/refurbishment.
• The 2016 Kaikōura earthquake was a watershed event for the Wellington office market. This event effectively reset Wellington’s market. Stock fell from 1.50 million sqm to 1.38 million sqm in the second half of 2016.  The significance of this decline in terms of the market reset was not so much this 8% decline in stock, but the resulting 46% decline in vacant stock from 181,000 sqm to 98,000 sqm in less than a year.
• The tight occupancy market post-2016 created favourable conditions for new developments, resulting in a supply cycle that has had an increasing vacancy impact since early 2022. Vacancy increased due to backfill (65,760 sqm), uncommitted new and refurbished space (9,567 sqm) and occupier contraction.  
• The supply cycle remains underway. More than 90,000 sqm of new and refurbished office space is under construction, mostly for completion in 2024 and 2025.
• Precommitment to the 2024-2025 supply pipeline currently stands at 60%. In addition to the circa 30,000 sqm of new office space for this period that has not yet been pre-committed, the Wellington CBD office market will witness around 11,500 sqm of backfill vacancy in 2024-2025 due to relocations.
• Contrary to perception, Wellington employees’ office attendance and utilisation rates are relatively high. According to CBRE’s 2024 New Zealand Office Occupier Survey, these rates stand at 65%, which is notably higher than Auckland's 59%. Refinement to hybrid work practices will continue to boost future office attendance.  
• Occupier strategies point to an active leasing market. Our Occupier Survey results indicate that 52% of Wellington office occupiers plan to relocate in the next 2-3 years.  Relocation to better quality space is occupiers’ leading real estate strategy and the desire to lift the sustainability and seismic performance of occupiers’ premises is also important. Occupier preferences also point towards the importance of location, in terms of proximity to public transport and a wide range of urban amenities, when evaluating new premises.  
• These occupier preferences will manifest in high absorption levels for the “right” types and locations of office space, and these will have a relatively quick recovery once economic and public sector demand pressures dissipate.
• We are likely passing through the demand trough brought on by public sector austerity and interest rate driven economic woes. Vacancy pressure will dissipate once the supply cycle moderates beyond 2026, and demand normalises.  Prime vacancy is forecast to peak at circa 7% in 2025, improving to below 4% by 2028.  Secondary vacancy improvements will be driven by stock withdrawals past 2026.