New research shows Christchurch commercial property market remaining resilient

Despite limited transaction volumes, the Christchurch commercial property market continues to display strength, according to CBRE’s latest research figures for the first half of 2023.

Jorge Chang Urrea, CBRE Research Manager, said low vacancy and stable or rising rents are features of the market across all sectors in 2023.

“The CBD office market has displayed an uptick in transactional activity and a decline in vacancy compared with the second half of 2022; while in the industrial market, vacancy is virtually zero and occupier demand remains insatiable. Retail rents are stable across the city and high demand persists for prime CBD street-front premises as well as quality suburban large-format space.”

Office Market

The already-tight Christchurch CBD office market registered a further decrease in vacancy in the first half of 2023, from 6.5% to 5.7%. This was largely attributable to a healthcare and social assistance organisation moving into a previously vacant A-grade building in 12 Oxford Terrace in a deal negotiated by CBRE. Prime net effective rents for CBD offices reached record highs during the second quarter of this year, up to $370 a square metre.

The situation is still extremely tight for office tenants looking to move within or enter the Christchurch CBD, said Mitchell Wallace, Associate Director of Office Leasing at CBRE Christchurch.

“Despite new supply coming on stream there are still very few opportunities in CBD offices, especially for tenants requiring spaces of less than 600sqm, which is the most popular size bracket. The persistent trends of low vacancy and rising rents do give some cause for optimism that more property owners will gain the confidence to commit to further new development projects.”

The suburban office market also had a small decrease in vacancy in the first half of the year, while rents were reasonably stable.

Industrial Market

The industrial market continued to remain strong in the first half of 2023, building on the momentum of 2022. Industrial vacancy reduced slightly during H1 to 0.79%, from an already extremely low 0.81%. While 80,500sqm of new industrial stock was completed during the period, extremely high demand among occupiers means vacancy remains effectively non-existent. 

As a result, rents continue to rise, with prime industrial net effective rents reaching a record high of $132 per square metre in Q2. Secondary net effective rents are also the highest ever recorded.

Hamish Clarke, Director of Industrial & Logistics at CBRE Christchurch, said the critically-low availability of both industrial land and existing buildings poses considerable challenges for occupiers looking to secure property for their future business requirements. 

“The situation is essentially the same across all size ranges of both vacant land and existing space, with large and small occupiers facing equally limited options.”

Investment Market

The persistence of high interest rates continues to challenge investors, while the upcoming election is contributing to further uncertainty, said Tim Rookes, Managing Director of CBRE’s Christchurch office.

“Where yields will land is still uncertain, with limited transactional benchmarks. Until clarity emerges around key factors including the OCR peaking and the outcome of the election, we expect transactional volumes to remain subdued.”

While the investment climate in 2023 is difficult, several positive fundamentals give cause for optimism locally. These include Canterbury retail sales, which increased by 5.1% in Q2 2023 compared with the same quarter in 2022. Canterbury’s retail sales growth was significantly higher than both Auckland (3.3%) and Wellington (0.9%) during the same period, he said.

“Christchurch businesses have had a great boost from the return of international visitors, with the city regaining its position as the gateway to the South Island. This has contributed to high demand for prime CBD retail space, with retail rents stable across the city.

“Key projects including East Frame housing, Te Kaha stadium and Te Pae Convention Centre will inject considerably more buzz and vibrancy into the city as we move into the warmer months.”

Christchurch's projected population growth between 2023 and 2028 also outpaces other regions in the South Island, contributing to the city's attractiveness from a property investment point of view, he said.