Wellington, New Zealand’s capital city, is home to 416,800 residents (2019), and its metropolitan area is comprised of four local authorities: Wellington City, Porirua, Lower Hutt, and Upper Hutt. As the nation’s capital, Wellington is the administrative and legislative centre of New Zealand and therefore the location of parliament and most public service departments. The iconic Beehive, the executive wing offices occupied by the New Zealand Government, is located north of the CBD in Thorndon, proximate to international embassies and the Supreme Court.
Wellington Harbour, one of New Zealand’s chief ports, processes approximately 10.5 million tonnes of cargo annually. As the southernmost settlement on the North Island, the port acts as interisland sea transport connection between the capital and Picton in the South Island and thus moves both goods as well as passengers via regular services. Cruise tourism operating out of the harbour contributed $56 million to the local economy over the 2019/20 season.
Wellington has also been given the moniker ‘the creative capital of New Zealand’ and is location of some of the largest and oldest cultural institutions in the country, including the Museum of New Zealand Te Papa Tongarewa. Weta Workshop, renowned globally for its special effects contribution to films including Lord of the Rings and Avatar, is also located Wellington. While public and professional services characterise many of the office occupants in Wellington and contributions to GDP; arts, culture, and innovation industries have played a bigger role in the local economy in recent years.
Rental levels continue to hold up in Wellington, underpinned by strong market fundamentals and the ongoing Government requirement for space. As such, we have observed a general trend of rising gross rents over recent quarters. Despite an increase in flexible working in the new post-COVID environment, occupiers previously considering downsizing have since elected to continue leasing their existing premises. Contributing to this trend, changes to insurance premium levels have resulted in rises in OPEX across recent quarters. In addition to the effects of insurance increases, OPEX is expected to continue to rise over the coming quarters given proposed rates increase across the region. In the Wellington City council’s budget, the rates increase of 13.53% has come into effect on 30 June this year, with an average increase of 5.1% proposed over the next decade.
The viability of new office projects remains on a case-by-case basis into 2021. However, several significant office projects are currently making headway through the pipeline such as Site 9 (Willis Bond), 40-44 Bowen Street (Precinct), and 1 Whitmore Street (Newcrest). We have also observed that many buildings previously classified as lower-grade office stock are being redeveloped into accommodation and residential uses, particularly in Te Aro. Notable examples include the conversion of the former Cadburys Great Expectations Building at 60 Ghuznee Street into a boutique hotel and 256 Lambton Quay to new Quest serviced apartments, both of which are under construction currently. However, the planned conversion of Morrisons Building at 13-15 Garrett Street into student accommodation is now placed on hold.
Over the course of 2021, there have been some significant transactions recorded illustrating ongoing investor interest for quality and well-located assets. The most notable of which includes Precinct Properties’ recent acquisition of Bowen House for $92,000,000 and the Freyberg Building for $49,000,000. Bowen House in in particular will undergo a comprehensive redevelopment and seismic strengthening. Once completed in 2023, the building will be fully occupied by The Parliamentary Services on a 15-year lease, providing a yield of 5.25%.
|Office Stock (sqm)||361,787||361,787||↔ 0.00%||↔|
|Vacancy||0.63%||0.91%||↑ 29 bps||↑|
|Net Face Rents (NZD per sqm p.a.)||$583||$605||↑ 3.86%||↔|
|Yields||6.55%||6.25%||↓ -30 bps||↓|
|Office Stock (sqm)||1,156,250||1,141,425||↓ -1.28%||↓|
|Vacancy||7.01%||5.07%||↓ -194 bps||↓|