Wellington CBD office building conversions expected to help reduce vacancy rate

The return of conversion projects to repurpose older office buildings in the Wellington CBD for residential use is expected to pick up from late next year, helping to reduce the elevated vacancy rate in secondary-grade offices.

A popular option before the current market downturn, office building conversion activity has disappeared from the market since 2022, largely owing to high construction costs and muted demand for apartments and residential property in general.

At the same time, new development and refurbishment projects are introducing a significant amount of new office space into the CBD, which is resulting in increased office vacancies.

CBRE surveys show that 5.8% of prime-grade office space and 17.7% of secondary space in the Wellington CBD is currently vacant.

This figure is expected to climb higher before the current development cycle winds down, according to CBRE Research.

More than 90,000sqms of new and refurbished office space is recently completed or under development, in the final phase of the development cycle which began following the 2016 Kaikōura earthquake.

The biggest impact of the new supply will be on secondary-grade office space, as tenants moving to new developments leave vacancies behind in older office buildings, which are more difficult to re-lease and become increasingly redundant as offices. Secondary office vacancy is expected to climb to around 25% during 2026. 

However, a significant reduction in the secondary vacancy rate is expected in 2027 and 2028 as conversion activity increases, said Zoltan Moricz, Head of Research at CBRE. 

“Office building repurposing has played an important role in reducing secondary office vacancies in past cycles and is likely to come to the rescue again in this market cycle as conditions improve,” he said.

“We expect the market to reach an inflection point in 2026 where values for vacant, older office stock will be at an economically feasible level for owners to repurpose them in a rebounding residential market.”

Matt Hince, CBRE Senior Director of Office Leasing, said converting office buildings into apartments and other uses can add value for owners, while removing vacant secondary grade office space from the market and contributing to the city's supply of apartments and other property types for which there is more demand.

“The return of higher demand for residential property as interest rates fall, coupled with government and council directives to intensify urban housing, presents a clear opportunity for owners of vacant or partially vacant commercial buildings to potentially realise a higher return from residential or mixed use conversions. It’s a practical solution that benefits multiple stakeholders.”

Often, if a commercial building needs significant seismic strengthening work anyway, owners may find that converting it for residential accommodation or other use is a cost-effective solution, he added.

26 Wellington CBD office buildings have been converted to residential, hotel and other use over the past 12 years, removing more than 88,000sqm of secondary office stock from the market.

Many of the Wellington CBD office conversions prior to 2022 were completed by The Wellington Company. Among its projects were the Te Kāinga Aroha apartments on Willis Street; a joint project between The Wellington Company and Wellington Council. It also converted the four-storey Trojan House in Manners St into 22 boutique apartments.