Wellington commercial and industrial property a 'compelling' investment, says real estate specialist

Monday, 9 September 2019

Wellington is a 'compelling' investment story with its strongly rising commercial property values and rents, says real estate specialist CBRE.

In its Marketview, Wellington Q2 2019, CBRE said most commercial property markets in Australasia were cooling off with rental growth plateauing, but not Wellington.

The value of commercial and industrial property had risen strongly in the year to June 2019 in Wellington driven by demand for office and industrial buildings.

The average value growth for office, retail and industrial properties in Wellington reached 7.8 per cent in the 12 months to June 2019.

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​Office rents rose 7.4 per cent from the previous year and industrial rents 8.9 per cent, however retail rents fell 2.7 per cent.

The largest sale in the capital so far in 2019 was 33 Bowen Street leased by the Ministry of Education for $82 million. The building was bought by a syndicate of European investors from Australian owners Talavera Property.

More growth in the value of Wellington commercial property was expected this year and next while the office market would enjoy strong rental performance, CBRE said.

Wellington's sustained low vacancy made it an attractive investment opportunity as the city continued to attract investors but there was not a lot of stock for sale.

'While conditions remain favourable for investment, and buyer bidding is elevated, a lack of suitable stock for prospective investors continues to stagnate transaction opportunity,' CBRE said.

Office development was expected to increase because of the lack of supply in the market. There was 100,000 square metres of new office projects circulating in the capital seeking leasing pre-commitments to get them underway.

'While there is a robust pipeline of potential development projects, there has not yet been any new build confirmed.'

Industrial development continued to increase, led by owner-occupiers.

The Government was particularly active in the office market currently short of office space as a result of buildings being demolished after the Kaikoura earthquake.

The Government need for more space had led to the successful leasing of 8-14 Willis Street, which is being redeveloped at a cost of $64m by Argosy, to Statistics New Zealand.

Further building developments were also being positioned for Government tenants, CBRE said. They were expected to be filled easily and not add much to prime office vacancy.

Government demand would act as a safety net for Wellington's market where the Crown occupied 45 per cent of the office buildings.

Wellington's prime office vacancy was at historical lows. The vacancy of prime CBD office was just 0.2 per cent at June 2019, and low vacancy was expected to continue.

Secondary CBD office vacancy was greater at 8.4 per cent but tenants preferred higher quality and more resilient buildings.

Rents were expected to keep rising because of the shortage of supply. In the past six months rental rates had risen 2.5 per cent in the prime market and 2 per cent for secondary office space.

Tenant demand for quality property would continue to grow. That made investment in buildings which needed refurbishment, strengthening and expansion viable choices.

Some tenants were engaging up to three years before their leases expired in order to secure tenancies, but buildings with less than a 67 per cent of the New Building Standard rating struggled to fill.

However, a tight housing market and increasing students and tourism in the capital supported investment in existing office buildings that could be converted into residential or hotel accommodation, CBRE said