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Wellington CBD Office market updates - Q2 2023

See below a summary of the biggest trends in Wellington’s CBD office market, plus an outlook on the next 12 months.

Flight to quality

Occupiers are seeking higher amenity and modern buildings to help draw staff back to the office and to address obsolescence issues with older buildings. Trend is particularly acute for buildings with lower seismic strength. Central government’s mandate for sustainable buildings will further cement this trend.

Tenants recommitting to the office

Post-pandemic ways of working have changed the nature of demand for space. Hybrid work has often led to occupiers using less space for desks but more space for collaboration.

Consolidation trends

Larger organisations have increasingly encountered seismic issues, often causing them to relocate to a series of smaller offices. This is expected to result in a renewed trend towards consolidations to improve space efficiency and ensure effective business operations.

Outlook for the next 12 months

Two-step rents

The flight to quality is resulting in low vacancies and rental growth amongst prime properties. Secondary properties are needing higher incentives to maintain face rents amongst weaker demand.

Yields stabilising at higher levels

Rising interest rates have led to a softening of yields across most markets. Signals that inflation and long-term interest rates are peaking means yields are likely to stabilise at higher levels. Lower numbers of sales transactions means there is less evidence available to showcase this trend.

Seismic issues remain a key challenge

Uncertainty around the C5 seismic standards will continue to result in landlords delaying assessments and strengthening until they are confident about the resulting NBS. This will however cause them difficulties in securing funding and tenants.

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