Kiwis balance quality with cost efficiency, Bayleys says
In the New Zealand office sector, there’s a growing trend where businesses are seeking to balance their desire for modern amenities and prime locations against the need for cost efficiencies, according to a new Bayleys report.
This balance is particularly challenging due to lower business confidence, leading to footprint reductions or delayed decisions, especially among mid-sized tenants.
Adjustments in hybrid work policies
As hybrid working models stabilise, with 91% of workplaces maintaining hybrid practices, companies are adjusting their policies to encourage more in-office presence. While the demand for individual desks has diminished, there is an increased need for spaces designed for collaboration, reflecting a shift in how office spaces are utilised.
Seismic compliance challenges
In regions like Wellington CBD, seismic compliance is significantly impacting the market.
Buildings that fail to meet seismic standards are becoming difficult to lease, compounded by ongoing changes in assessment standards that cause landlords to hesitate in making costly upgrades, Bayleys said.
Market outlook for the next 12 months
Diverging rental trends
The preference for high-quality, well-located office spaces continues to drive rental growth in these segments, resulting in low vacancies. Conversely, older and less ideally located properties are facing challenges and may require higher incentives to attract tenants.
Neutral investment climate
The investment sentiment in the office market is stabilising into a neutral phase following a period of softness. Despite recent cuts in interest rates attempting to lower yields, long-term bond rates remain high, influenced by persistent inflation concerns.
This scenario suggests that significant reductions in yields from current levels are unlikely.
Economics of new developments
The feasibility of new office developments is becoming more complex.
While reduced yields have helped balance the rising construction costs from previous years, ongoing high costs and softer yields necessitate higher rents for new projects to be economically viable.
However, there’s a potential bright spot as some experts believe construction costs might start to decrease, potentially improving the prospects for new developments, Bayleys reported.
Access Bayley’s latest office market update for more information.
