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Bayleys Research


CAPITAL VACANCY EDGES UP

CAPITAL VACANCY EDGES UP

The overall vacancy rate in the Wellington CBD office market for the June 2008 quarter was 7.76%, up from 6.79% for the previous six months period. This is despite the fact that approximately 2,000m2 was removed from the survey during the same period. While vacancy has softened, it is still exceptionally low, confirming that availability of space to lease is very limited, particularly for occupiers looking for large, contiguous floor areas.

 

 

The overall vacancy rate has been driven up by increases in vacancy across the CBD Core and Te Aro precincts, while marginal decreases were experienced in Thorndon and the CBD Fringe. The CBD Core experienced the greatest increase in vacancy, softening by 1.61 percentage points. This is due to increases in available space in the lower grades of office space. Also, some businesses have been forced to consolidate their business requirements, which are expected to be magnified should current economic circumstances persist.

The next biggest increase in vacant space was experienced in Te Aro, softening almost 1.5 percentage points. This is largely a reflection of the reduced tenant demand for the secondary stock located in this precinct.

Vacancy in the CBD Fringe and Thorndon precincts decreased over the six month survey period to June 2008. In the fringe this decline has been attributed to the inclusion of the fully tenanted Chews Lane development in the survey. In Thorndon, the vacancy rate decreased to an exceptionally tight 3.85%, down from 4.01%. This is a reflection of the large supply of prime space in the area as well as continued interest from the public sector in Thorndon.

 

MOVING FORWARD

The uncertain economic and, especially, political conditions will be upper most in everyone’s minds over the balance of 2008. Whatever the outcome of New Zealand’s general election in November, the true implications on future office requirements for government tenants will not be apparent immediately. The current Government dominance of Wellington office space is expected to continue but whether the existing trend of growing government dominance will continue will be determined by who wins the election.

The current global economic downturn is slowing New Zealand’s economic growth and this will have flow on effects for business expansion and future office floor requirements. The anticipated slowdown in the amount of office space required is being partially offset by the tough development conditions where funding is difficult to source and expensive. This is limiting speculative office development which will help protect the current very low vacancy levels in the medium term. While overall Bayleys Research expects vacancy rates to increase over the balance of 2008 and into 2009, the extent of this increase will be determined by the length and depth of the current economic downturn.