Wellington city’s strong demand for commercial real estate and lack of available space put it at the top of the latest Royal Institute of Chartered Surveyors’ Asia Pacific market update.
CBRE research analyst Richard Carr said Wellington is seen as the best investment destination in the region for investor and occupier sentiment, second best for rental and capital expectations, and is among the best in the world based on the RICS survey. Over the past 12 months, CBRE was involved in the sale of four Wellington buildings worth more than $50 million, including Kiwi Property Group’s Majestic Centre to South African finance company Investec for $123 million.
Carr said commercial property in Wellington has seen a benefit from the earthquake, which has stripped office space from the city’s supply, forcing tenants to pay higher rates to secure premium property.
“It’s increased the infrastructure spend, increased the capital maintenance programmes of buildings, which wouldn’t have been done otherwise. We would have just slowly degraded our capital over time,” Carr said.
“Paired with that we’ve also got countercyclical rental growth and countercyclical capital growth compared to the rest of New Zealand and Australasia, so again it presents Wellington in a better light than people give it credit for."
CBRE figures show Wellington’s prime CBD office space of almost 370,000 square metres had a vacancy rate of just 0.7 percent in the March quarter compared to 1 million square metres of secondary CBD office space that had a vacancy rate of 9.9 percent. That compares to a 6.6 percent vacancy for prime CBD office space in Auckland and 11 percent for secondary office space in the country’s biggest city.
The dynamic has also increased the volume of bidding on commercial listings, with foreign investors seemingly undeterred by the Labour-led government’s plans to tighten the screening regime for major overseas investment.
Carr said a theoretical eight bids on a $100 million asset means there’s $800 million of capital ready to be invested in New Zealand, indicating robust confidence among investors given the upfront cost of lodging an offer.
“The cost for these major institutional investors to get a bid together isn’t negligible, they can’t just think about it for a bit and put a number on a napkin, it can cost upwards of $100,000 to formulate a bid,” he said.
The RICS report also showed 80 percent of survey respondents perceived values in Wellington as being fair, second only to Perth.