Christchurch CBD Office Market Tipped To Remain Strong Despite Upcoming New Supply

The Christchurch CBD office precinct is recognised as the strongest office market in New Zealand, with vacancy having reduced drastically in the face of very high tenant demand. However, the market is on the brink of a significant new supply phase, with 37,000 sqm of prime office space set to enter the market between 2024 and 2026.

Tim Rookes, managing director of CBRE Christchurch, said the relatively large amount of new CBD office space entering the market across a short time-frame is likely to push vacancy levels up, however the market is expected to remain resilient.

“Continuing strong demand among tenants seeking office space in the CBD means we expect the market to cope with the increase in supply, with new vacancy being absorbed and the market recovering fairly quickly to low vacancy rates.”

The Christchurch office market has outperformed other major New Zealand centres in recent years, with exceptionally low vacancy rates across all submarkets. This is particularly evident in the prime CBD office sector, where vacancy was just 3.1% at the end of 2023, having fallen from 5.7% in June. Prime grade vacancy in the core CBD sub-precinct was just 0.4% in December 2023, according to CBRE Research.

Developers have now responded to the prevailing low vacancy and high demand dynamics. Nine new construction projects are expected to enter the market between 2024 and 2026 (although two will be occupied by their developers). These new buildings are in addition to three projects already completed in the first half of 2024, said Mitchell Wallace, associate director of office leasing at CBRE Christchurch.

“There is a significant amount of upcoming new office space due to enter the market in the next two years, all of it prime grade and with the bulk of the new supply expected to be released over the remainder of 2024.”

The new supply could push prime CBD office vacancy to between 7% and 10% during 2024-2025. However, high demand among office occupiers is likely to stabilise vacancy levels by 2026 as absorption catches up, said Wallace.

“We now have an extremely strong-performing CBD office market characterised by very low vacancy and high demand among tenants competing to secure the very little available space. Strong demand among office occupiers in Christchurch should mean that any increase in vacancy will be short lived, although we may see some vacancy persisting in the refurbished buildings which are outside the core CBD area.”

Pipeline of new buildings

Among the projects currently underway, most are expected to be completed this year. The refurbishment of the eight-level former IRD building at 224 Cashel Street is the most significant, representing 35% of the total prime office space entering the market over the next three years (14,000 sqm of space).

Another major refurbishment scheduled to open this year is the mid-century modern building at 159 Hereford Street, offering 3,500 sqm of renovated and seismically-strengthened space.

A third notable renovation is the former State Insurance Building at 116 Worcester Street, a grand classical-style building completed in 1935 and damaged in the earthquakes. This project will add 5,700 sqm of office space to the market by early next year.

New construction projects already completed in 2024, or due to open soon, include Carter Group’s The Regent at 33 Cathedral Square (3,300 sqm), leased to law firms including Anderson Lloyd and Buddle Findlay; and 200 High Street (2,200 sqm), which will be fully occupied by its developer, Treshna Enterprises.

Projects expected to be completed in 2025 include 209-211 High Street (2,500 sqm) and 235 High Street (1,100 sqm). Planned for release in 2026, but not yet under construction, is a new building at 107 Cambridge Terrace, which will add 3,600 sqm of office space to the market.

The decision to proceed with these redevelopments and new constructions without full tenant precommitment indicates growing confidence among developers in the market. This marks a shift from the "build to order" approach of recent years, said Rookes.

“The introduction of significant new space without tenant precommitment shows developers are taking notice of the extremely high demand among tenants for prime CBD space. As such they are now confident enough to respond with new developments or refurbishments on a partially-committed basis. The quick uptake of backfill opportunities, where tenants lease space recently vacated by another tenant, is giving owners further confidence in the market.”

The current state of the CBD office market dates from the post-earthquake period, when office stock dramatically decreased from 390,000 sqm in 2010 to 70,000 sqm in 2014, said Jorge Chang Urrea, CBRE research manager.

“The subsequent rebuild phase brought this up to 290,000 sqm by 2019, with prime space constituting 76% of the total stock, compared to just 14% pre-earthquake. This reflects a strong preference among businesses and staff for high quality CBD premises, with the rebuilt CBD characterised by a very high proportion of prime offices relative to secondary buildings, for which there is lower demand.”

The new supply is hitting the market following a development lull between 2020 and 2023, said Rookes.

“The immediate post-earthquake rebuild phase ended in 2019 and since then office space has been steadily absorbed as businesses have sought to return to the CBD or move to bigger premises.”

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