Demand for prime office space tightens across New Zealand

New Zealand’s three biggest cities record lower vacancies in prime office space for 2H22, with the capital leading the charge under 2.6%.

November 03, 2022

JLL New Zealand’s recent Vertical Vacancy Review highlights increased stability in the prime office market across Auckland, Wellington, and Christchurch amid mixed conditions for the domestic and global economies.

Environmental, Social and Governance (ESG) concerns continue to gain importance, with several corporates already leading the way in commercial real estate. Overall, the government is leading in this space, requiring any new government-owned non-residential buildings valued at over $25 million to have a Green Star rating of 5 or higher (effective 1st April 2022). By 1st April 2023, buildings valued over $9 million must meet the same standard.

Now that borders are open, we’ve seen increased enquiry, conversations, and meetings with offshore investors, confirming further international capital investment in New Zealand’s commercial real estate.

For Kiwis working in the country, expectations around the office of the future are changing with a demand for better quality spaces. This trend is forecast to continue. Consequently, we expect rents will continue to rise for quality properties with good tenants and covenants through the remainder of 2022 and into 2023. Occupiers are seeking to improve workplaces to support new flexible working models. This will assist in retaining and attracting talent in a tight labour market, as JLL’s APAC HR Perspectives Survey evidenced 56% of occupiers endorsing this strategy.

Employees will keep returning to their workplaces. The city centres will benefit from increased activity and foot traffic boosted by the government removing the traffic light settings and other pandemic restrictions such as mask-wearing. The increased number of cruise liners docked in our ports is evidence of New Zealand’s prized tourism sector returning to its former glory in the months ahead.

Below is the city-by-city data as of 30th September 2022:

  • Since our first quarter Vertical Vacancy Review, prime vacancies (premium and Grade A space) within the Auckland CBD core have decreased by 350 bps to 9.8% (from 13.3%). This represents uptake of an additional 14,760 sqm of space
  • Prime buildings are performing strongly, with the divergence between prime and secondary rents widening

Figure 1: Auckland CBD Office stock and vacancy

Source: JLL Research

  • Wellington’s prime office vacancy decreased by 158 bps, from 4.16% to 2.58%, representing an uptake of ~5,569 sqm of space. Public sector firms are largely responsible for the high demand for prime office space in the capital
  • The market awaits new/renovated stock to be completed by the end of this year. Much of this stock is prime office space and pre-leased. The trickle-down effect in lower grades is expected to be significant, which will further widen the divide between prime and secondary properties

Figure 2: Wellington CBD vacancy

Source: JLL Research

  • Christchurch’s prime office experienced minimal change to vacancy since JLL’s last review, down 60 bps from 4.6% to 4.0%. This represents an uptake of 659 sqm of additional space, driving the trend of increasing rents
  • The Garden City remains stable, with increased investor interest made more prevalent due to limited stock available for purchase in Auckland and Wellington

Figure 3: Christchurch average net face rents

Source: JLL Research

This is a positive end to 2022 for prime office space across the country’s three main city centres. You can find deeper insights in the latest Vertical Vacancy Review.