Wellington office vacancy outperforms Auckland and Australia

While many owners of office buildings in the Wellington central business district are lamenting higher vacancy and reduced tenant demand, CBRE research shows the market is actually relatively healthy compared with Auckland and Australian cities. 

Increased supply of new and refurbished office space entering the Wellington CBD office market in the past two years, along with reduced tenant demand from hybrid working and public sector redundancies, has resulted in more office space sitting vacant in the Wellington CBD office market.

However, Wellington’s office vacancy is low relative to Auckland and most major cities in Australia, according to CBRE Research’s Wellington CBD Office Supply and Demand Outlook report. 

Overall CBD office vacancy in Wellington (across all quality grades) is 13.4%; lower than Auckland (15.1%), Perth (15.5%), Adelaide (17.5%) and Melbourne (18%).

When looking at prime grade office space only, Wellington has the second-lowest vacancy rate (5.8%) among all major cities in both countries, behind only Christchurch (2.9%). This reflects the ‘flight to quality’ trend among occupiers towards new and refurbished office space in buildings with high seismic ratings. 

Zoltan Moricz, Head of Research at CBRE New Zealand, said that while the combination of recent factors affecting the CBD office sector have resulted in vacancy increasing to levels not seen in the city since the mid 1990s, regional comparisons show Wellington’s CBD office market is relatively resilient.

“Wellington CBD office vacancy is actually pretty modest in the Australasian context. There is a widespread perception that the Wellington CBD is currently struggling with very high office vacancy, however our research shows that the city has a relatively low office vacancy rate compared with other major cities in New Zealand and Australia.  This is especially true for the prime sector, where Wellington’s 6% vacancy rate as of December 2024 is the second lowest after Christchurch amongst the nine leading Australasian cities.”

Jorge Chang Urrea, Research Manager at CBRE, said that despite the headwinds facing the office market in Wellington, vacancy levels are nowhere near those in some Australian cities. 

“Melbourne and Adelaide are two examples of Australian cities where CBD office vacancy sits in the high teens across both prime and secondary quality grades. Sydney prime office vacancy is also above 10%.”

A flight to quality among tenants in Sydney has seen occupiers moving out of older office space, at the same time as significant new supply is entering the market. Canberra’s office market is also facing challenges from elevated levels of upcoming new supply of office space.

Leasing demand is low in Melbourne due to businesses ‘rightsizing’ their staffing levels; a flight to quality among occupiers and affordability challenges with rents. 

Adelaide and Brisbane have both had reductions in office vacancy with good tenant demand, however vacancy remains high particularly in Adelaide. 

The vacancy outlook for the Wellington CBD office market is improving, with a turnaround expected from 2026, according to CBRE’s research. 

Vacancy in prime grade office buildings in the CBD is predicted to reduce to below 4% from its current level of 6.0% by 2028, due to lower supply and recovering demand, said Matt Hince, Senior Director of Office Leasing at CBRE Wellington.  

“We have already seen a stabilisation of prime vacancy, with the vacancy rate only increasing by 0.4% in the second half of 2024, from 5.6% in June 2024.”

Furthermore, CBRE’s latest December 2024 CBD office occupancy survey indicates that the rate of overall vacancy increases also moderated in the second half of last year, increasing by less than 1% (from 13.4% in June to 14.3%). This compares with a 3.2% increase in the  first half of the year.  

Geographically, occupancy remains high in Thorndon, but Te Aro’s vacancy is now above 20%. 

“Public sector downsizing and economic headwinds have had a negative impact on demand for office space. As these pressures start to dissipate and the supply cycle moderates, the vacancy rate is expected to recover,” said Hince.