See below a summary of the biggest trends within New Zealand’s office market, plus an outlook on the next 12 months for the market.

Biggest trends

Flight to quality or fight against costs?

Occupier demand for better amenities and modern buildings needs to be balanced against the drive for better cost efficiencies in response to lower business confidence. This often means footprint reductions are needed to support decisions, or on some occasions, decisions are being deferred until economic conditions improve, particularly for mid-sized tenants.

Work from home getting more controls

Organisations are increasingly reviewing their hybrid working policies, often implementing controls to increase the time that staff spend in the office. Overall, hybrid working trends have reduced the demand for individual desks, but this is often balanced by more space for collaboration.

Seismic headaches

Seismic challenges are heavily influencing some markets, most notably Wellington CBD. Poor assessment results are leading to some buildings becoming largely untenantable until resolved. This issue is further complicated by potential changes to seismic assessment standards, which are leading some landlords to pause before investing in strengthening.

Outlook for the next 12 months

Two-step rents

The flight to quality is resulting in low vacancies and rental growth among modern properties in desirable locations. Meanwhile, dated or poorly located properties need higher incentives to maintain face rents amid weaker demand.

Investment market shifting into neutral

Sentiment among agents suggests that the investment market is heading into neutral territory after a period of weakness. Yields have risen since 2022 due to higher interest rates. While recent interest rate cuts should help bring yields down, long-term bond rates have remained persistently high due to lingering concerns about inflation. As a result, yields may not reduce significantly from recent levels.

Higher rents needed for new builds to stack up

Reducing yields largely offset the impact of higher construction costs during 2020-2021. Softer yields and persistently high construction costs mean that higher rents are needed for new developments to be feasible. Some experts perceive that construction costs are now decreasing, which may improve the viability of new developments.