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Commercial Property bounces back from restrictions
Market activity for sub-sectors will continue to be driven on an opportunity-by-opportunity assessment basis. As borders are planned to open further in 2022, cross-border investments into New Zealand should recover with increased travel and accessibility thus supporting transaction activity.
We highlight some key property thoughts for 2022 that will impact on property decision making as follows:
• Environmental, social and governance considerations will continue to be at the forefront of conversations and increasingly underpin prime real estate decisions for all key stakeholders.
• With increasing interest rates and murmurings that funding is getting tighter, there will be continued focus on the quality of occupiers to secure predictable and sustainable future returns for investors.
• Investment decisions will continue to focus on the longer-term horizons and see through the
Demand for real estate is expected to pick up across all asset classes, although recovery will remain multispeed, says JLL New Zealand Head of Research Gavin Read
shorter-term impacts of the pandemic on the economy.
• Quality offerings of all asset classes will attract tenants, as the ‘flight to quality trend’ continues to be increasingly important, along with a widening divergence between prime and secondary assets.
Auckland
Industrial
Demand
Supported by robust demand from both manufacturing and logistic occupiers, Auckland industrial market remains tightly held as demand continues to outpace supply.
With tenants competing strongly for space in 2H21, vacancy fell: from 2.3 to 0.9 percent in Auckland City from 2.1 to 1.0 percent on the North Shore from 1.5 to 0.8 percent in Auckland South.
Although we don’t track vacancy rates for the North West precinct, overall vacancy fell for Auckland industrial fell from 1.9% to 0.9%.
Demand is particularly strong for well-located and modern facilities as occupiers consider long-term efficiency and sustainability strategies.
Any weakness in demand is much more likely to be experienced in the secondary market as tenants move into new or better stock.
With that being said, secondary assets with under-utilised land are likely to be targeted by add-value investors or developers for redevelopment or refurbishment opportunities, especially those in good locations.
Supply
There were two completions reported during 4Q21, both in the Auckland South precinct.
The first was the completion of one of the lots at 78 Tidal Road in Mangere, a warehouse by Centura. The other was a warehouse for Wurth NZ at McLaughlins Road in Wiri.
There remains a number of developments in the pipeline supported by strong demand.
In Auckland City, these are spread across Mt Wellington, Otahuhu, St Johns, Sandringham, Mt Albert, Mt Roskill, Onehunga and Ellerslie.
Developments on the North Shore are concentrated in Silverdale, but are also spread across Takapuna, Northcote, Albany and Rosedale.
Auckland South industrial developments are spread
Auckland industrial developments in the pipeline
Auckland City
15-21 Bell Avenue in Mt Wellington is a brownfield development with capacity to deliver 10,000 sqm of high stud warehouse facility by 2H22, with a budget of over $40 million.
The Microsoft Data Centre is underway in the CBD, with a budget of $100 million, projected to be completed by 2024.
The construction of hydrogen generation facilities at Waitemata Port has a budget of $50 million and is projected to be completed by 2023.
North Shore
National Storage Albany at Don McKinnon Drive in Albany has a budget of $25 million with completion expected in 2H22.
The industrial development at Newman Road in Silverdale has a budget of $10 million and is expected to be completed in the first half of 2023.
Auckland South
A Southern Gateway Development by James Kirkpatrick Group at Princes Road in Manukau has a budget of around $1 billion.
Various sites are under construction by Logos Property in Wiri with a total expected cost of over $90 million.
North West
Hobsonville Business Park at 96 Hobsonville Point Road in Hobsonville is a development by HD Group Investments and has a budget of above $50 million.
The development of Kakano Business Park in Westgate by Midpoint Investments has a budget of above $15 million.
Costco Westgate, Mainfreight's new warehouse within the Brigham Creek Business Park and 18 office/industrial units at 14 Northside Drive, Westgate will make up a total area of more than 48,000 sqm.
Rent: Auckland City industrial
out across East Tamaki, Mangere, Manukau, Matakana, Takanini, Otara, Highgate, Brookby, Wiri, Drury, Papakura, Pukekohe and Waiuku, with expected completions from 2H22 through to 1H26.
There are many developments in the pipeline for the North West precinct, most of which are located in the up and coming Hobsonville Business Park.
Asset performance
Industrial assets remain the most sought-after class for investment.
Prime yields for all Auckland industrial for 4Q21 held at the previous quarter’s historical low of 3.88%, as well as secondary yields holding at 5.00%.
Average rents for prime stock for all Auckland industrial increased slightly from $172 in 3Q21 to $174 in 4Q21, while average rents for secondary stock stayed stable $139.
By precninct, rents in Auckland City rose for the second quarter in a row with prime up slightly to $177 per sqm from $174 per sqm, and secondary staying the same at $140 per sqm.
Average land values for the precinct increased slightly from $1,350 per sqm in 2021 to $1,400 per sqm in 4Q21.
On the North Shore, rents stayed stable for the fourth consecutive quarter at $170 per sqm for prime stock and $140 for secondary stock.
Average prime land values for the precinct increased slightly by $50 per sqm to $1,300 per sqm for the fourth quarter.
Rents in the Auckland South precinct rose for prime stock for the third quarter in row from $172 per sqm in 3Q21 to $176 per sqm in 4Q21, and secondary stayed at $138 per sqm.
Average land values for Auckland South increased slightly from $1,150 per sqm in 3Q21 to $1,175 per sqm in 4Q21.
Meanwhile average land values for the Auckland north west precinct stayed consistent at the 3Q21 value of 1,250 per sqm, with continuing strong demand for
industrial land in this region.
Notable transactions included an industrial centre at the intersection of Church Street and Captain prings Road in Onehunga in 3Q21, acquired by Jasper for $35.4 million.
There was also a private sale of 23-25 Porana Road in Wairau Valley for $14 million and he acquisition of a brand new industrial estate at 78 Tidal Road, Mangere by Centuria.
With interest rates now on the rise there is an expectation for a slow upward movement in yields towards the end of 2022, with prime and secondary yields drifting above 4.75% and 5.75% respectively by the end of 2026.
Retail
Demand
Even though retail has been one of the hardest hit industries from the pandemic, Auckland suburban retail continues to hold up.
We continue to see new major multi-national brands wanting to enter the countries retail market with the most recent announcement from Ikea of their proposed retail store and online offering at Sylvia Park.
Vacancy decreased from 12.4% in 1H21 to 10.0% in 2H21. This is different to CBD retail, where vacancy increased from 7.1% during 1H21 to 8.1% during 2H21.
This is due to changing business strategies of SME retail businesses, and their focus moving away from physical presence towards a strong online presence.
Foot traffic has also shifted from the CBD to the suburbs, as more people start working from home even after lockdown restrictions have ended.
Despite this, leasing momentum is positive in parts of Auckland CBD.
Offerings close to transport nodes and the waterfront continue to see new tenants taking over any vacancies, as evidenced by Espresso vacating corner of Queen and Customs Streets being replaced by luxury jewellery company Van Cleef & Arpels.
Interest is starting to build further up Queen Street where shops are close to the City Rail Link (CRL), which is nearing completion. This area is expected to have an increase in foot traffic once CRL starts operating.
Supply
No notable retail-based completions were recorded for 4Q21.
However, the refurbishment of Countdown CBD in Britomart, together with the completion of Beaumont Apartments in the Wynyard Quarter with retail spaces on the ground floor has assisted in creating minimal positive net increase in supply for the CBD.
The supply of new offerings in the CBD remain limited to ground floor retail components of other development types (office, residential or hotel) as highlighted above.
Ongoing developments such as One Queen Street (office), One Mills Lane (office), Seascape (apartment) and Voco & Holiday Inn Express (hotel), all include ground floor retail components.
The luxury precinct continues to be underway at Westfield Newmarket mall with most of the shops anticipated opening around Christmas time.
In addition, Ikea’s megastore remains in early planning with proposals provided for both West Auckland and South Auckland where there remains greenfield land available that would be suitable.
Vacancy and Occupied Space: Auckland CBD Retail
Development pipeline is spread across various suburban precincts, including Mt Albert, Newmarket, Takapuna and Albany. A number of these developments are mixed-use and include hotels and apartments with retail and hospitality spaces on the ground floors.
Asset performance
Rents remain stable for majority of the suburban retail categories. As at 4Q21, prime suburban retail average rent held at $925 per sqm and secondary suburban average rents remained at $325 per sqm.
Prime CBD rents also remained stable for 4Q21, after increasing in 3Q21 by 5.1% (q-o-q) reaching $2,575 per sqm. Leasing activity remained strong along the lower end of Queen Street and in Wynyard Quarter.
Yields remained unchanged at 6.06% for prime stock and 8.94% for suburban stock on the back of limited transactional evidence, and no new sizable retail stock coming to market.
However, with interest
rates now rising there is an expectation for a slow upward movement in yields towards the end of 2022.
Investors will remain selective over the near term with a focus well located in strategic areas with quality retail tenancies, and the simmering confidence that the very high vaccination rates of New Zealanders as we look to ‘live with’ COVID in our communities.
Office
Auckland CBD Demand
Our 2H21 vacancy survey results showed mixed results across the area.
Overall vacancy in the CBD office increased from 10.6% to 11.5% suggesting an additional 12,290 sqm of available space, however there is an uneven spread of occupancy across the city on a building-by-building basis.
In comparison by grade, prime stock vacancy for 4Q21 was at 8.5% while secondary stock vacancy was recorded at 14.6%. There has been an increase in divergence both in vacancies and in rents, between prime and secondary office buildings.
Meanwhile, vacancy reduced for Auckland fringe office space from 12.0% to 10.8%, while Auckland suburban space also decreasing from 9.8% to 7.6%.
Vacancy in Symonds Street is predicted to decrease further in 2022 depending on international students, as education services make up a big proportion of occupiers here.
Overall vacancy also decreased in the Southern Corridor from 14.6% to 7.1%, mainly due Central Park and Millennium Centre being leased up.
However vacancy increased from 6.5% to 8.2% in Takapuna, and marginally increased in Albany from 7.4% to 7.5%.
Some of the larger vacancies in the North Shore suburbs which we track, include the 2,800 sqm Air NZ space in Takapuna and 1,800 sqm space at 9-11 Corinthian Drive in Albany.
Looking forward, rising employment confidence and strong hiring demand in the labour market should support ongoing demand for office space.
Though, with substantial supply forecasted in the short-to-medium term (particularly in the CBD), the suburban office market is likely to remain challenged
as backfill vacancy and rationalisation of space continue to dampen demand.
However with that being said, comparatively affordable rentals of the suburban office market will continue to attract tenants.
Supply
No new buildings were completed in 4Q21, thoug the completion of 136 Fanshawe (100% occupancy) during 3Q21 added 20,000 sqm of A-grade stock to the CBD office supply.
One Mills Lane (25,0000 sqm A-grade space, estimated completion mid 2024) and One Queen Street (14,300 sqm premium space, estimated completion 2023) continue to be the most significant developments in this market. These developments are predicted to significantly increase prime office stock in the CBD.
Other notable projects in the pipeline include 3-15 Albert (15,000 sqm new build), 35 Graham Street (24,000 sqm refurbishment), 87 Alberts (14,500 sqm refurbishment) and the final stage of Precinct Wynyard Quarter innovation precinct (~18,000 sqm across three buildings), all currently in planning stage.
There are also projects in
the pipeline spread across Newmarket, Freemans Bay, Parnell, Grafton, Mt Eden and Greenlane.
Of those, Manson’s One Ten Carlton Gore Road in Newmarket, the refurbishment of 24 Balfour Road in Parnell and 9-15 Marewa Road in Greenlane are the most notable.
In the Southern Corridor, moderate supply is anticipated in the short to medium term.
Most projects here are mixed office and retail developments, including Building 2 at 9-15 Marewa Road (Kimberley Trust, ~5,300sqm new build) and 656 Great South Road (Mansons, 6,000 sqm refurbishment).
Both developments are targeting a Green Star rating and would look to set new benchmarks for the Southern Corridor office market once completed, with an expected completion date in 2022.
However, medium-term office projects in the precinct remain either on-hold or in early planning as developers wait patiently for the next property cycle.
These include the $120 million LQ Hotel mixeduse development by Safari Group Ltd (currently in planning).
Consequently, limited new supply in the medium term may help to support rental levels and vacancy in the Southern Corridor.
As for the North Shore, there are several developments in the pipeline, with projects scattered across Albany, Pinehill, Takapuna, Milford, Northcote, Wairau Valley, Orewa and Silverdale.
Supply continues to be focused in Albany which has available land for development.
Notable projects in the pipeline include the $120 million Munroe Lane office development by Asset Plus Limited. With an anticipated completion date of 2H22, the project is expected to deliver ~15,000 sqm of 5 Green Star office accommodation to be anchored by Auckland Council on a 15-year lease.
Another major development is at Goldwater Drive in Silverdale by the name of East Coast Heights. This is a mixed office and retail development with a budget of $100 million and expected completion by 2025.
Asset performance
Rents in some precincts stayed steady with an upward trend supported by ongoing occupier demand for quality.
This was true of average rents in the Southern Corridor, at $273 for 4Q21 and are forecasted to reach $289 by December 2026.
Prime rents in the CBD and fringe precincts were also steady at $521 per sqm.
Secondary rents on the other hand decreased in these precincts, as tenants try and get into premium buildings where space is available.
In the CBD they dropped to $224 per sqm and in the fringe precincts to $251.
Secondary rents are likely to face additional downward pressure through to 2023 in an increasingly more competitive market, with the gap between prime and secondary rents expected to widen.
Average rents for suburban precincts stayed consistent at $299 per sqm.
Though Takapuna remained at $320 for 4Q21, given the recent small increase in vacancies for the North Shore, we expect this to impact Takapuna rents with a small reduction to $315 by the end of 2022, followed by a gradual increase to above $330 by the end of 2026.
There were four notable transactions recorded during 4Q21, all in the fringe or suburban precincts. These included sales of the PFI Building in Epsom, Sky TV Campus in Mt Wellington, Fidelity House in Newmarket, and the property at 99-115 St Georges Bay Road in Parnell.
Despite these transactions, yields held steady for the fringe and suburban precincts in 4Q21 at 5.75%.
While we are aware of a few notable deals currently under contract in the CBD, yields held steady here too. Overall, average prime yields remained at 4.69% (the lowest levels ever recorded by JLL) and average secondary yields remained at 5.75% as at 4Q21.
Southern Corridor yields held steady for 4Q21 at 6.50%. This represents a range between 5.50% and 6.00%. Yields are forecasted to increase slowly to reach 6.50% by 2023.
On the North Shore, average yields remained at 5.63% and are forecast to gradually increase in the coming years to over 6.00% by the end of 2026.
Hoever, with interest rates now on the rise, we will need to see evidence of transactions to establish if the expected slow upwards movement in yields by the end of 2022 transpires.
Yields Auckland CBD Office
Wellington
Industrial
Demand
Our latest 2H21 vacancy survey shows overall vacancy fell 70 bps to 2.1% from 2.8% with tenants competing strongly for space as it becomes available.
In comparison by precincts, Grenada North saw the largest fall in available space with the vacancy rate decreasing 230bps from 5.6% to 3.3%. Vacancies for Petone and Seaview decreased marginally, and Nguaranga and Porirua bucked the recent trend with minimal increases for second half of 2021.
Current market conditions give no indication of any significant increases in vacancy for the foreseeable future across the Wellington industrial precincts. With little new supply entering the market, vacancy will continue to range around present structural lows.
Supply
Between June 2017 and June 2021, we recorded only ~31,000 sqm of new supply entering the market averaging 3,500 sqm per year. There was just one development completed for during the last quarter, being 37 Percy Cameron Street, being a warehouse and office space, with an NLA of 1,987 sqm.
We are aware of just one more project for Wellington industrial currently underway. The Lyall Bay Junction has an expected completion date in second half of 2023. Though the limited supply pipeline has supported cur-
Yields Wellington Industrial
rent rental levels and kept vacancy levels low, and with little to no availability of new industrial space, any possibility of expansion or relocation over the near future remains a challenge for the market.
Asset performance
Prime gross rents remained unchanged for 4Q21 at $165 per sqm. Secondary gross rents have a range of $128 per sqm to $140 per sqm for 4Q21. We expect rents for both prime and secondary assets to resume increasing for the foreseeable future due to limited scope for new development activity.
There were no transactions recorded for Wellington industrial for 4Q21. Notable transactions for the second half of 2021 remained those recorded during 3Q21, being 29 Parkway, Wainuiomata which sold for $7.95 million, land area of 12,900 sqm and building area of ~8,800 sqm, and 176 Gracefield Road selling for $7.5 million with land area of 8,200 sqm and total building area ~4,510 sqm.
Average prime yields held at 5.83% for 4Q21, and secondary remaining at 7.00%, While we do expect yields to increase gradually by a total of 0.5% by 2026, it is yet to be seen how this market will react to increasing interest rates during 2022.
Retail
Demand
We have observed that tenants are becoming more strategic about the spaces they lease in Wellington. With continued low foot traffic in the CBD and growth in E-commerce, some retailers have chosen an online model to reduce costs, to the more traditional physical retail space offering, with an example of this change including OfficeMax.
As a result, total vacancy moved higher by 62 bps in 4Q21 to 9.45% due to less demand for physical space.
In Wellington’s CBD retail sub-precinct, where a majority of retail units are located or close proximity to the Golden Mile, our 2H21 vacancy survey recorded an increase in vacancy of 153 bps from 8.7% to 10.2%, highlighting the effects of the increased challenges for the retailers in this sub-precinct.
Supply
We did not record any completions for this market during the second half od 2021. However, we did record positive net completion in our 1H21 vacancy survey, including the new unit at 104 Cuba Street, part of Willis Bond’s Cuba Precinct development, with six units totalling 1,000 sqm completed.
We also noted the partial completion of 16-20 Willis Street, around 1,050 sqm, with a variety of tenants now occupying spaces in the mall, and construction is still underway on the remaining units.
Despite ongoing development in the Wellington CBD, however a continued lack of large-format retail under development in the CBD means any significant changes to supply are unlikely in the short term.
Asset performance
Average prime retail rents for 4Q21 remained unchanged at $857 per sqm and $600 per sqm for secondary stock. Rents have stayed consistent since fir the second half of 2021 for CBD prime stock and since first quarter of 2021 for CBD secondary stock.
With no significant transactions for the retail market in 2021, and all recent new stock in the CBD being a component of buildings of other use types, primarily office yields have remained unchanged for 4Q21. Current yields for prime CBD is 7.19%, prime suburban is 10.0% and secondary CBD 9.44%.
We are forecasting yields for prime CBD, prime suburban and secondary CBD to slowly towards the later part of 2022, as a result of the rising interest rates.
Office
Demand
By grade, prime vacancy dropped from 1.8% to a mere 0.9% while secondary vacancy also decreased substantially by 320 bps from 10.2% to 7.0%. Wellington core (CBD and Thorndon) office vacancy also reduced from 5.1% to 3.3% overall.
Te Aro also recorded a fall in vacancy by 350 bps from 10.8% to 7.3% over 2H21. When compared to the CBD and Thorndon, Te Aro continues to be an attractive location for tech, startup and SME companies due to its relative affordable office offering.
With government tenants as a key demand driver for office space, prime vacancy is expected to remain low while secondary vacancy may face some upward pressure as we are expecting increasing backfill vacancy from completing developments.
Supply
No new project completions were recorded for 4Q21 for Wellington CBD office, just the completion of the seismic upgrade for 30 Waring Taylor Street.
Pre-leasing activity in new builds such as 8-14 Willis Street (12,300 sqm, 100% preleased), 40-44 Bowen Street (22,000 sqm, 100% pre- leased), and 1 Whitmore Street (17,500 sqm, 100% pre-leased) are set to create a quantum of backfill space availability through 2022 and 2023 in existing A-grade buildings.
Also expecting to add to the backfill space story will be the recently com-
menced projects such as the Wellington Archive Building (15,000 sqm) and 48 Mulgrave Street (4,500 sqm) are also 100% leased to government tenants with similar delivery timeframe of 2022/2023.
Asset performance
For the last quarter of 2021, A-grade spaces gross average rents increased to $618 per sqm from $613 per sqm. B-grade, average gross rentals also increasing from $448 per sqm to $453 per sqm. B- grade incentives stayed consistent at 6.10% as owners look to maintain face rents to retain/attract tenants.
With limited available stock transacting, this has kept yields unchanged for the fourth consecutive quarter. Prime gross yields stayed at an average of 6.25% (a range of 5.50% to 7.00%).
Notable transactions for 2H21 remained those recorded during 3Q21, including Precinct’s acquisition of both Bowen House ($92 million) and the Freyberg Building ($49 million), with plans to refurbish both buildings in the near future.
Investors remain interested in acquiring new or strengthened office stock in good locations, or value add properties with good opportunities. by the construction pipeline which will see positive net completions throughout 2022.
Pre-leasing activity will continue to be a key to viability of developments with comparatively little speculative accommodation been seen coming to the market.
Asset performance
We observed minimal rental growth for Christchurch prime industrial rents for the fourth quarter of 2021. Average prime net face rents increased by 0.4% to $127 psm during 4Q21, while secondary net face rents held at $101 psm.
We saw a minimal increase in the gap between prime and secondary industrial rents in Christchurch. Given there is still limited new stock projected in the short term, this will support the medium term forecast of minimal rental growth for both prime and secondary industrial assets in Christchurch.
For 18 months yields have remained unchanged for the Christchurch industrial market. Looking forward with interest rates now on the rise we expect yields to initially hold steady in 2022 and then gradually drift higher as a result of the higher interest rates.
Christchurch
Industrial
Demand
Vacancy reduced across all precincts in Christchurch for 4Q21, with overall vacancy at 2.6% being the city’s lowest on record since 2014, as a result of strong demand and limited new stock coming to market.
With limited new stock some tenants are having to remain where they are or take secondary space, as opposed to moving to the preferred option of newer, more modern space where they would be paying a premium for such space.
We expect tight conditions will continue through 2022, with demand not expected to ease from investors and occupiers for industrial.
Supply
Christchurch holds the draw card when compared to Auckland and Wellington for its availability of industrial development land. This is expected to provided the region with a continuing increase in interest from occupiers and investors.
We continue to expect the expansion of total supply to be at a well managed pace, without large amounts of stock coming to the market quickly. This is supported
Rent Wellington Office
Retail
Demand
Christchurch retail market sentiment has been a positive story throughout 2021, due to less restrictive lockdowns. This has been supported by the open domestic market, and retail spending in the region being one of the least impacted in comparison to other regions within New Zealand underpinning demand.
With domestic borders open mid December, just in time for the holiday period, which was expected to provide an increase in foot traffic and a boost to consumer spending in retail and hospitality.
What is uncertain for Christchurch for early 2022, is the level of any future impact, with retailers now operating under the new ‘traffic light’ system, there is a sense that with the borders opening the CBD’s foot traffic will reduce with impacts of Omicron.
Supply
Christchurch’s retail sector does comprise a high proportion of quality retail stock, as result of the rebuild over several years.
This is more prominent in the CBD area where newly constructed offices are now open and popular with tenants. The reducing vacancy trend continued in 4Q21 for Christchurch CBD retail space, with no new supply for the second half of 2021.
The development pipeline remains unchanged with approximately 15 projects under construction. These developments are made up of primarily mixed-use developments, with smaller ground floor retail components. The scheduled completion dates ranging between early 2022 through to late 2023.
Asset performance
Christchurch retail rents seemed to have found a floor at current ranges and remaining at current levels throughout 2021. With short- lived restrictions in the City, rents remain unchanged across the board for the fifth consecutive quarter, with prime CBD net rents at $575 psm.
Much of the local retail focus had remained in the CBD throughout most of
Rent Christchurch Retail
2021, however for the last quarter of the year with the growing uncertainty of COVID, the suburbs have had more support from the ‘shop locally’ mentality.
One major transaction for Christchurch being the Palms shopping mall selling in 4Q21 for $88.8million. Outside this transaction there was very little activity in the last three months.
Yields continue to remain well supported, with average prime CBD yields unchanged at 6.25% and prime suburban yields reducing by 25bps to 6.00% .
Office
Demand
The general sentiment and demand for quality office space remains very positive with leasing enquiries continuing, particularly so in the CBD.
Tenants that are wanting to move to the CBD, are struggling with the limited opportunities due to lowering vacancy rates.
Vacancies are now at their lowest with prime at 3.2% and secondary 6.0%, which is a result of the limited new stock coming to market.
With the minimal supply of new offerings and the very low vacancy for prime, tenants looking to relocate in the short term, may need to consider secondary locations where there is higher vacancy and opportunities.
Supply
With net completion back 760 sqm for 2H21, this provides a very minimal increase for the year of 776 sqm for Christchurch.
This confirms what we have been saying in previous quarters, that the minimal future pipeline that is expected to come to market in the short term will in the near term keep supply behind demand.
At least for the first half of 2022, there is an expectation that there will be no easing of the limited labour resources, international borders to open on a staggered basis, rising construction costs and supply chain issues all point to continuing to impact future viability of projects unless the development has secured good tenant(s) with strong covenants and long lease terms.
Asset performance
For the fourth quarter of 2021, we have seen the second quarter in a row of minimal rental growth of prime CBD net rents, up 1.50%. This provides the continuation of the divergence started last quarter between prime CBD rents and prime suburban rents, as a result of low vacancy, lean supply and tenants wanting to be nearer to the City Centre.
With CBD space being newer in stock in comparison to other cities, this is a contributing factor to 4Q21 being the fifth successive quarter for yields remaining flat at 5.38%.
As noted previously, interest in prime stock Christchurch office stock from investors outside the region have continued in the last quarter of 2021 and is expected to continue into 2022, with limited assets coming to market in other regions. We forecast yields will gradually start to rise towards the end of 2022, as rising interest rates start to have an impact.
First published February 2022 by jll.co.nz
Vacancy and occupied space: Christchurch Office
