The capital of Canterbury and its largest city, Christchurch is home to 385,000 people (2019) and is the commercial centre for the region. Located on the east coast and serviced by Christchurch International Airport and Lyttleton Port, the city is often regarded as the ‘gateway’ to the South Island.
Christchurch is the economic core for the regional primary sector, with agricultural, forestry, and other industries contributing to over 10% of local GDP. The arable plains surrounding Christchurch have long supported agribusiness, especially dairying, but recent diversification has observed developments in horticulture and viticulture. In addition, the processing of primary products constitutes 7% of GDP and Christchurch’s overall manufacturing sector, the second largest in New Zealand, contributes $2.2 billion to the national economy. These two sectors therefore have a significant influence on commercial real estate in Christchurch including the current development of various business parks on the city’s urban fringe.
There is a strong relationship between industry and tertiary institutions in Christchurch. Lincoln University is renowned for its Agriculture and Forestry programme, ranked in the top 100 of similar courses by QS World University Rankings. Similarly, the University of Canterbury’s engineering and computer science departments contribute both research and graduates to the growing technology and innovation industries of the city.
Now a decade on from the destructive February 2011 earthquake, Christchurch has experienced substantial revitalisation and redevelopment of its urban core, as well as a Smart Cities programme seeking to establish the city as New Zealand’s innovation hub.
The results of our 1H21 survey indicate that total CBD office vacancy fell 159-bps to 6.3% over the half. This reflected a 156-bps decline in prime vacancy to 4.2% and a 165-bps reduction in secondary vacancy to 11.2%. This diminution in vacant space in the CBD signals an ongoing shift of office tenants back into the CBD or to alternative premises within the CBD following the post-earthquake rebuild activity, with only select pockets of spaces left on the market.
A demand differential between prime and secondary stock continues to increase steadily following the 'flight to quality' trend also observed in the Auckland and Wellington office markets. Furthermore, there remains no significant changes in supply, with no further large-scale projects anticipated in the pipeline to be completed in the short-term within the CBD. This represents long-term supply trends whereby the volume of new stock has waned in the past three years as the post-quake rebuild boom has subsided and developers land bank undeveloped sites in the CBD (estimates suggest 20% remains undeveloped). The increasingly limited available prime CBD stock and reduced supply are likely to see occupiers settling for alternative accommodation options over time, such as secondary CBD and prime suburban opportunities.
Christchurch office rents and incentives have held flat since 3Q19. While this exemplifies the market equilibrium established post-quake and post-rebuild, fundamentals have been sustained because Christchurch office is composed of over 70% prime stock and there remains an active market for new, better-quality spaces. Looking forward, the sentiment amongst Christchurch occupiers is a return to the office which will decrease vacancies in popular precincts, like the CBD, and encourage a gradual increase in rents as demand rises.
Having steadily compressed over the last two years, we believe Christchurch office yields have reached a market low and are expected to remain stable in the short-term. This is supported by ongoing investor interest to NZ market due to its transparency and long-term economic fundamentals.
|Office Stock (sqm)||262,654||264,900||↑ 0.86%||↑|
|Vacancy||4.88%||4.22%||↓ -66 bps||↓|
|Net Face Rents (NZD per sqm p.a.)||$330||$330||↔ 0.00%||↔|
|Yields||6.00%||5.38%||↓ -62 bps||↔|
|Office Stock (sqm)||371,846||375,283||↑ 0.92%||↑|
|Vacancy||6.47%||6.27%||↓ -20 bps||↓|