New Zealand office market dynamics Q2 2025

• Preference for quality and location continues.
• Increase in supply will provide occupier options.
• Investment activity poised to rise after dearth of activity.

The Auckland CBD vacancy rate increased by 130bps to 16.5%, representing vacant space of 225,070 sqm across all grades. The prime and secondary office vacancy rate increased to 12.7%(+250bps) and 21.7% (+120bps) respectively.

Several key themes that have been consistently present over the past few years continue to influence demand dynamics. These include adoption and ongoing refinement of hybrid working models, relocation, and right-sizing from major occupiers from outside and within the CBD, and occupiers looking for flexible working options in an uncertain business environment.

A major completion included two buildings along with an annexure at Precinct Properties’ Wynyard Stage 3 development. These provide a net lettable area of 19,700sqm of prime office space in total. While new construction levels remain relatively balanced in the short-term, a number of planned large-scale projects in the medium to long-term will increase total supply and occupier options.

After remaining unchanged for three consecutive quarters, CBD prime average net rents increased this quarter, albeit marginally, by 1.2%, to now stand at NZD 613 per sqm p.a. CBD secondary average net rents also increased this quarter, albeit marginally, by 1.8%, to now stand at NZD 288 per sqm p.a.

Office investment volumes have remained relatively flat over the last two years. There have been a limited number of flagship office assets which have sold in the last six months as owners look to hold on to key strategic assets. While outside of this reporting period, at the time of writing, a large-scale office and retail premises at 22, 24 and 26 Durham Street West and 19 Victoria Street West was recently sold by a private investor to Quattro Group for approximately NZD 104.00million.

Outlook

There have been a number of developments signalled for works over the next five years or so including MRCB’s Symphony Centre, Precinct Properties’ Downtown Car Park redevelopment of 60,000sqm+ of office space, and Manson TCLM’s 35 Graham Street redevelopment as examples. This influx of premium space is a positive indicator of market confidence and future growth potential.

          Auckland - Historical supply and demand trends

• Vacancy expected to increase further as refurbishment projects complete.
• Stability in rents as occupier options rise.
• Dearth of sales transactions over the last two years.

The overall vacancy rate increased to 13.8% from 8.0% (+580bps) for 2Q25. This comprises a prime vacancy rate of 7.2% (+220bps as compared with 4Q24), and a secondary vacancy rate of 17.1% (+760bps as compared with 4Q24).

The Wellington office market has experienced approximately16,000sqm of sublease space being introduced during the last year from the public sector, along with circa 13,000sqm from the private sector.

Rents across all grades and precincts remained unchanged during the quarter. CBD Core prime and secondary average gross rents stand at NZD 751 per sqm p.a. and at NZD 456 per sqm p.a. respectively. Average gross rents for Thorndon and Te Aro stand at NZD 460 per sqm p.a. and at NZD 360 per sqm p.a., respectively.

Precinct Properties announced in February that PAG will acquire the remaining 20% minority interest in 40 & 44 Bowen Street in the Wellington CBD for NZD 48.00 million.

Outlook

Adaptation and resilience define Wellington's commercial real estate market as we move through the year. Government sector adjustments, private sector rebalancing and the evolving needs of tenants are requiring both occupiers and investors to re-evaluate their strategies, demonstrating the market's capacity to adapt while navigating shifting priorities.

An ongoing focus is on operating expenses, especially with rising insurance and local council rate increases in recent years. This is leading to a number of landlords looking to embed a net rather than gross office leasing environment, especially at the top end of the quality spectrum. Prime average gross rents in the office sector have seen a modest increase since 4Q24, while prime average net rents have remained relatively stable.

          Wellington - Historical supply and demand trends

• Vacancy rate increases across grades.
• Increase in supply will provide more occupier options.
• Investment activity remains limited.

The overall vacancy rate increased to 12.2% from 5.4% (+670bps) for 4Q24. This comprises a CBD vacancy rate at 13.3% (+880bps as compared with 4Q24), and a Suburban vacancy rate at 9.3% (+180bps as compared with 4Q24).

The increase in CBD vacancy is partly due to refurbishment completion of a 13,392sqm ex-IRD building at 224 Cashel Street, for which leasing efforts are currently underway. Lower occupancy in secondary properties has also caused the CBD vacancy rate to increase. The CBD secondary vacancy rate increased to 9.7% from6.7%.

Construction continues at 209-211 High Street, with Leighs Construction to lease most of the 2,400sqm of office space, and at107 Cambridge Terrace, a 6-storey development by YYK Ltd, a Singaporean based entity, at the corner of Hereford Street and Cambridge Terrace.

After a 4.5% increase during the first half of the year, CBD prime average net rents have not experienced growth. This is primarily because there are a few mixed-use buildings with office space expected to complete during 2025, all of which have some uncommitted space.

Investment activity remains limited, with the last notable transaction occurring in April 2024 when The Press Building at 158 Gloucester Street in the CBD sold for NZD 22.25 million. This 2,023sqm property transacted at an 8.00% yield.

Outlook

After experiencing strong demand, limited supply and low vacancy rates for several years after the rebuild, the landscape for Christchurch’s office market is changing again. This is due to a number of major office development completions and a slower occupier demand environment more recently leading to a rise in the vacancy rate, which now stands at more than 10% for the first time since 2017.

          Christchurch - Historical supply and demand trends