Suburban office space in Christchurch holding its own

Suburban office space in Christchurch holding its own, West End the star in CBD

Christchurch, October 20, 2017

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Summary
Strong lease commitment in the Retail Precinct
Positive CBD outlook
Private rebuild has peaked and is slowly
Limited future office construction in the pipeline
Moderate office vacancies
Downward pressure on office rents
Central city land utilisation
Buoyant investment market

There’s not the glut of Christchurch suburban office space that many predicted while office vacancy in the CBD is sitting at the expected levels, according to the annual Property Market Summit report published by Colliers International in Christchurch.

Gary Sellars, a director of Colliers Valuation & Advisory Services, says there has been a lot of speculation about how much vacancy there is in the central city and the suburbs, but there is not as much as many people thought.

“It’s as we expected, based on recent history and the significant rebuild. We are projecting CBD office occupancy will slowly improve. The leasing that is occurring in the CBD comprises a mix of tenants relocating in the CBD from their first move buildings after the earthquakes to newer and better buildings and some moving back from the suburbs. I think there’s a perception out there that everyone is moving to the CBD and the suburbs are being decimated but that’s not the case. I would have thought it’s more focused on a larger proportion of tenants moving around within the CBD.”

Sellars has been producing the report since 1993 and last night presented the findings at a Property Council of New Zealand function in Christchurch. He says the same fundamentals of supply and demand prevail and there are many similarities between now and after the early 1990s. He picks it will take up to 10 years for rents to rise again and all the space to be absorbed.

There is 347,497 sqm of office space overall in the CBD, projected to rise to 356,403 sqm in 2018. This compares with 446,000 sqm in 2010. Current CBD office vacancy currently stands at 20.4%, an improvement on 23.9% last year. The West End, where many of the professional services are gathered along the Avon River, has just 8.9% vacancy while the core, inside the river, Manchester and Lichfield Streets, sits at 21.4%. The southern end has the biggest vacancy at 30.1%.

There is 233,000sq m of office space in the suburbs with overall vacancy currently at a surprisingly low 17.3%. The largest vacancy is in Riccarton at 23.2%, followed by Addington at 17.3% and Burnside on 14.1%.

“I think everyone thought that Burnside, in particular, was being decimated but it’s actually not. Looking ahead, vacancies are going to increase in the suburbs but not dramatically.”

Net office rents in both the CBD and suburban areas are reducing in the face of competition from landlords trying to lease space. There are certainly incentives out there across the board in the form of rent holidays and contributions.

Tier 1 offices in the CBD (net effective after allowing for incentives and operating expenses) are $300-$350/m2. In 2012 after the earthquakes, they were $400-$425/m2 because of the shortage of stock.
In the suburbs rents are sitting at $200-$280/m2 (net effective).

The report notes a marked decline in construction activity as the rebuild progresses in the CBD. In 2015, there was 142,507sq m of office stock under construction. This year that figures sits at just 32,637sq m.

From an investment perspective, the market is extremely strong and yields are generally in the 6-7% range for good quality commercial and industrial properties. More affordable attractive property is selling in the 5.5-6% range.

ENDS

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