Commercial sector’s time to shine: research update from Colliers International

December 10, 2018

Chris Dibble, research and communications director at Colliers International, discusses the drivers of, and outlook for, various sectors of the commercial property market in New Zealand’s three main centres.


At a macro level, the commercial and industrial property sector in New Zealand remains in a solid period of occupier demand with rising construction activity and increasing rents, while yields remain firm and sales activity remains buoyant due to a low interest rate environment. However, each of the main centres and property sectors are experiencing different push and pull factors influencing the market’s performance at the micro level.


Auckland CBD

Overview: Office tenant focus on quality, new and existing, pulled down the prime vacancy rate for the first time in almost three years to 3.5% in June 2018 with the secondary vacancy rate at 8.1%. Over the next five years there is expected to be 110,080 sqm of office space under development, representing 7.6% of the total floor space. This is unlikely enough to satisfy current demand. Prime net face rents have increased by 2.5% over the past year. Yields continue to firm, and capital values rise in a low interest rate environment. This has kept sales activity buoyant, especially from offshore buyers.

Forecast: Our forecasts indicate that vacancy rates will remain broadly in line with current rates until 2020 when major CBD office projects complete. More demand for fewer pockets of prime space available over the next 12 to 24 months means rents will continue to rise by around 3% to 4% p.a. until more supply becomes available in 2020. An increase in incentives will be likely in the run-up to 2020. Yields are forecast to firm by approximately 50 basis points over the next 24 months and remain steady, then rise gradually as global interest rates rise.

Wellington CBD

Overview: Office space in Wellington’s CBD remains tight after the significant reduction in total supply following the Kaikoura earthquake. Vacancy remained steady at 7.7% in June 2018, down from 10.5% pre-earthquake. Around 25,180 sqm of new build space was recently added to total supply with the completion of Deloitte Building and PwC Centre, both opening with 100% occupancy. Prime gross face rents increased by 5.9% over the past year, now at $509 per sqm. Average prime CBD office yields have firmed 25 bps to 6.6% compared to a year ago. Seismic issues remain a focus for any occupiers and investors in Wellington.

Forecast: Demand pressures continue in the CBD as the capital’s shortage of office space drives the sector, especially for high quality space. Strong pre-commitment of new buildings will assist with short-term market growth, but the addition of 90,000 sqm of premises either under construction or being refurbished over the next five years will alleviate acute supply shortages. We forecast rental growth for prime and good quality secondary office space to increase at 3.0% p.a. over the next few years. Yields will likely firm by approximately 45 basis points until 2020.

Christchurch CBD

Overview: There has been a sharp decline in CBD office development over the past year.  The peak of development activity in 2015 of approximately 142,500 sqm is just 9,500 sqm in 2018. With 356,000 sqm of total CBD office space, expected to increase to just under 370,000 sqm of space by 2019, the market is entering a more stable phase of activity. Assisting the growing tenant base at the high-quality end of the market is the level of face rents which typically range between $350 and $370 per sqm, down from historic rates. Incentives in the form of rent free periods and fit-out contribution are available. Strong investment demand sees CBD yields ranging between 6% and 7%.

Forecast: Leasing activity will grow. Continued tenant relocations from the suburbs, the internal CBD churn of existing tenants and small tenant leasing activity will mean some tenant’s will need to forego their exact requirements, despite a 20% vacancy rate expected next year. Rents are projected to remain broadly in line with current rates and maybe a tad softer for some, but investment demand will remain solid from locals, North Island and overseas purchasers, keeping yields firmly at current levels for the next 12 months.



Overview: Our latest August 2018 industrial survey findings indicate a record low vacancy rate of 1.7 percent overall. This is the lowest vacancy rate recorded since our surveys began in August 1995. Warehouse rental growth shows no sign of slowing down at least in the short-term, primarily due to the lack of supply and the sharp reduction in secondary vacancy, limiting tenant options. Prime average net warehouse rents continue to track upwards, reaching $124 per sqm in June 2018, a 4.4 percent increase from a year ago. In September, Foodstuffs’ 13.12ha distribution centre in Mt Roskill, Auckland sold for $93 million. This represents the largest singular asset industrial transaction on record in New Zealand. The previous record-holder was the $90 million sale of The Warehouse distribution centre in 2012. Both properties were sold by Colliers International.

Forecast: The persistence in occupier demand which has kept vacancy rates at record lows is unlikely to be met by a sufficient supply response. Land availability and pricing remains the key market mechanism that will result in demand outweighing supply. This will result in the market remaining in favour of landlords. Greater levels of cashflow will likely be sought with yields at record lows.


Overview: The Wellington industrial market continues to perform strongly, driven by strong tenant demand, a lack of available industrial supply, and growth from local industries.  Vacancy has dropped to 2.1 percent in November 2017, down from 2.9 percent a year ago. Prime average warehouse rents climbed to $108 per sqm in June 2018 from $100 per sqm a year ago. Average prime yields have firmed 17 basis points relative to a year ago, reaching an average 7.52 percent. Average secondary yields have reacted in a similar fashion, tightening 19 basis points to an average 8.71 percent in June 2018.  Transmission Gully, along with other infrastructure projects like the Whitby and Waitangirua link roads by Porirua City Council, will create better and more efficient transport options for new areas of development. Timeframes for the Petone to Grenada link road have been extended due to the Government Policy Statement 2018 review.

Forecast: Wellington’s buoyant industrial market continues to gather pace with a construction pipeline that hasn’t matched occupier demand. Industrial supply is constrained by a shortage of available land, but new transport links will bring new opportunities. We forecast slow but steady rental growth across the regions with a slight firming in yields over the next 12-24 months due to positive sector fundamentals along with an accommodative investment environment.


Overview: Average prime and secondary warehouse rents have remained steady over the last year at $103 per sqm and $77 per sqm, respectively. Annual building consent numbers have declined ever so slightly from 179 in 2017 to 161 in 2018. Prime average yields have firmed for the first time since December 2016, tightening to 6.55 percent in June 2018, a drop of 28 bps for the same time last year. Notably, in June, Steel & Tube sold their property on Blenheim road for $21.1 million on a sale and leaseback basis.

Forecast: The release of significant industrial land across Christchurch post the earthquakes has seen occupiers with a significant number of options to pursue. While supply and construction activity has been strong, the market is now reaching a period of stability. This should assist with cashflow and investment returns over the medium term which have remained broadly stable in recent years.



Overview: Prime space is best in retail and those located off main pedestrian flows or unable to commit capital expenditure to attract consumers are facing challenging times. Overall strip retail vacancy has increased to 4.5%, up from 3.5% a year ago. This is primarily driven by suburban retail rather than CBD retail which remains in strong demand. The retail supply pipeline is the largest it has been this cycle with 180,000 sqm of space to be built in the next few years. This is attracting new tenants to the sector, some from offshore, which will assist consumer choice. Rents continue to rise at lower rates relative to long-term averages, with the exception being the new shopping centres under construction and under expansion which are pushing new benchmarks. Average Prime CBD retail yields are at 5.3%, while regional centre yields are 100 basis points softer.

Forecast: The significant addition to supply will alleviate the restriction on possible retail leasing opportunities in some of Auckland’s most desirable retail precincts. However, with this additional supply, the majority coinciding in completion dates, could see a rise in vacancy rates. However, given the quality of the developments and the targeting of the retail mix, rents are unlikely to decrease in response to the extra supply. The lift in quality will flow through into sales activity, but the property will still need to fit a relatively stringent set of purchasing criteria.


Overview: Wellington’s golden mile along Lambton Quay and Willis Street continues to experience steady occupier demand with limited availability in prime spots. Further out from the central city, shopping centre demand is somewhat back on track after the completion of refurbishment programmes and sales activity that has risen modestly. Limited changes in overall leasing activity has meant that gross face CBD prime rents in Wellington increased only slightly, now at $1,318 per sqm, up 1.8% in the past year. Average regional shopping centre rental growth rates remain relatively flat, like average bulk retail rents which have remained flat for almost two years. Average retail yields remained relatively steady albeit a slight softening in average regional centre yields occurred, now at 8.3%.

Forecast: New central retail space, along with existing supply spread throughout the city, will provide tenants with a variety of options to keep demand and supply balanced over the next 12 months. However, prime retail space along the golden mile will remain the most sought after and command the highest rents. Given the more moderate spending from consumers and the influence on retailer profitability given increasing costs and reduced margins, landlords are unlikely to lift rents significantly more than in the past year, instead focussing on capital growth. Demand for high-quality Wellington retail premises will likely see yields start to firm modestly over the next 12 months.


Overview: Positioning itself as the world’s ‘newest’ city, Christchurch is entering a new era as a compact and modern community centre with solid economic growth and consumer confidence that is above the national average. According to information from ChristchurchNZ, within the four avenues there is now a working population of 38,500 and more than 4,300 businesses. With 6,000 residents and a total of 838,000 guest nights, central city foot traffic is reaching an average of 17 pedestrians per minute. There are now more than 300 retailers in the central city including fashion retailers such as H&M, Max, Barkers, Rodd & Gunn, Seed Heritage, Trenery, Witchery, Macpac and more. The opening of new stores has seen inner CBD retail sales year-on-year growth of 15% between 2012 and 2017 increase to 40% between 2017 and 2018, according to Marketview. The recently opened three-level, NZD 50 million development, Hoyts EntX cinema that offers 900 seats spread across seven screens, with 13 food outlets signed up, also lifts the central city vibe. Around 700 shared electric scooters from San Francisco-based company Lime have also debuted to keep the city moving.

Forecast: It is all of these supportive factors, along with more leasing opportunities due to the addition of more supply, enabling retailers to commit to new business plans in central Christchurch. Assisting in this decision is the relatively flat rental environment in the central retail precinct, typically ranging between $700 per sqm to $1,250 per sqm, which is expected to remain broadly similar over the next 12 months.