Low availability of CBD office space continues to affect tenants in Christchurch

Upcoming vacancy data is likely to show greater availability of CBD office space in Christchurch, however the reality is the market will remain very tight and tenants with upcoming expiries should not become complacent, according to CBRE’s Christchurch office leasing team.

Mitchell Wallace, Associate Director of office leasing at CBRE, said the entry into the market of some 19,000sqm of office space across two major refurbishment projects may result in upcoming vacancy surveys showing a glut of space available.

“Most of the upcoming vacant space in the Christchurch CBD office market will be in two refurbished buildings. This available space will influence vacancy data, but it will not suit all tenants, especially those looking for smaller offices.”

The buildings currently undergoing refurbishment are the ex-IRD building on the corner of Cashel and Madras streets; recently acquired by developer Nick Hunt’s Lichfield Holdings which is continuing the strengthening and renovation work started by previous owner Huadu International. It is the third largest office building in Christchurch.

At 116 Worcester Street, Vale Property and Russell Property Group are strengthening and restoring the former State Insurance Building to provide character office space.
The largest tenant group in the Christchurch CBD office market is businesses occupying between 400sqm and 600sqm of space. The two buildings being refurbished will provide floor plates of between 750sqm and 2,000sqm, said Wallace.

“Most tenants looking for CBD space require smaller premises, so the upcoming availability of space may not suit their needs. We’re advising tenants to ignore the vacancy data, as the urgency is still there to seek out opportunities well in advance of current lease term expiries.

“Tenants also need to be decisive in their property search, as there is competition for upcoming office space and they may find there is nothing available where they want to be located if they leave their decision-making too long.”

New buildings entering the market will also influence vacancy rates; however the next projects scheduled for completion already have significant precommitment. These include Carter Group’s The Regent on Cathedral Square and Portus Property’s development at 211 High Street on the site of the former Excelsior Hotel.

“Larger corporations are already engaged for these spaces, which again does not help the situation for smaller to medium-sized occupiers,” he said.

“Compounding the problem is that the next chunk of new development space we were expecting to enter the market has not been as quickly taken up as expected, largely due to economic and election uncertainty.”

The lower level of tenant precommitment for proposed new developments has delayed the commencement of construction on some projects, which compresses the upcoming availability of space even further. Only three office lease deals for spaces over 1,000sqm have been concluded in the Christchurch CBD this year.

“Leasing precommitment remains a key concern for many developers. Previous development cycles have seen large swathes of vacant stock come to market with expectations of tight leasing markets that never eventuated.

“This was the scenario which led to the soft market conditions we saw through 2016–2020 and developers are wary of this, causing them to take a more cautious approach. Now, the lack of much, if any, speculative development means our supply issue is compounded – not good news for tenants looking for new premises.”

With the pace of the East Frame housing development and construction of Te Kaha stadium now really ramping up, it is hoped that developers will take renewed confidence in the future of the central city and press ahead with construction plans, Wallace said.