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New Wellington developments 'just the start' as prime office space vacancy is 'lower than ever'

Demand continues to outstrip supply in Wellington's prime office sector, fuelling the need for further development, a research analyst says.

Richard Carr, of CBRE Wellington, said available prime office space was "lower than ever", contributing to renewed investor demand.

The announcement of Site 9, being developed by Willis Bond & Co, and the timber tower, the brainchild of Sir Bob Jones, was "just the start of a new development cycle", while 20 Customhouse Quay was almost complete, Carr said.

"This is not expected to be the extent of development, however, the [Customhouse Quay] building will only provide minimal relief to the low prime vacancy rate as most of the space is pre-committed."

Many other prominent players were looking for suitable locations with anchor tenants, Carr said.

"Office development is expected to increase as a result of the current supply and demand imbalance…

"With office rental prices increasing across all grades, market rents have closed the gap to economic rents for new construction," he said.

"This should enable tenant pre-commitment to help support development agendas further."

The CBRE Wellington Marketview report for April to June shows vacancy for prime stock in the office sector has fallen to a new low of just 0.4 per cent.

Occupiers were continuing to soak up vacant space throughout the city as a hangover from the Kaikoura earthquake last year, he said.

Leasing deals in prime office buildings such as Maritime Tower, Majestic Centre and NZX Centre contributed to the reduction in vacancy, the report shows.

The largest deal was with Summerset Retirement Village and OMV which will take over 902 square metres in the Majestic Centre.

Vacancy also remained "particularly low" in the retail market.

This was evident by the leasing in the new development on the corner of Manners and Victoria streets, as well as increasing interest further afield.

While retail rents had "plateaued" in the past six months, demand remained for prime space, as international retailers continued to enter the market, Carr said.

"Retail sales reached $8.2 billion in the past 12 months, the strong sales growth in years, and representing a 5.3 per cent increase on the previous quarter.

"We're seeing new stores in secondary CBD locations and development occurring across the market."

In the industrial market, rising rents and low vacancy rates were also supporting development agendas.

Vacancy fell from 7.9 per cent to 7 per cent in 2016.

Ongoing demand indicated further increases in rents for the remainder of this year, with increases concentrated to the lower end of the industrial market, Carr said.

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