Wellington CBD Office | Report First Half 2023

The capital’s office market has continued to perform strongly despite the prospects of an economic slowdown and the sharp downturn in business confidence. Demand has continued to run ahead of new supply underpinned by the government sector and bolstered by corporate occupiers seeking higher quality space. As a result, overall vacancy has fallen to the lowest level recorded since 2008 reaching 5.4% as of December 2022, down from the 5.9% recorded six months earlier.

Office supply will receive a significant boost in 2023 with the completion of several significant projects. In total, approximately 55,000 sqm of new build and refurbished space will be added to the CBD’s inventory over the year. While development activity is set to slow after 2023, ongoing demand for prime quality space continues to underpin development intentions. This is well illustrated by confirmation from Precinct Properties that it is to develop a new 24,000 sqm office property at 61 Molesworth Street with tenant pre-commitment from the Ministry of Foreign Affairs and Trade (MFAT).

Tight market conditions, the introduction of new highquality premises, and an inflationary environment has placed upward pressure on rentals. Average prime grade gross face rents currently stand at $680 per sqm, up from $643 a year earlier. With prime grade leasing options having been limited for an extended period, rents for B grade space have also been increasing, up by 4.2% over the year to December 2022.

The impact of higher interest rates and the prospect of economic recession has seen investment activity slowing. Demand from both local and overseas investors for prime quality assets, however, remains keen. With the latter well illustrated by the sale of assets by Precinct Properties to GIC and PAG, via joint venture investment funds.

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