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Underpinned by government occupation and bolstered by New Zealand’s better than expected economic performance, vacancy within Wellington’s CBD increased only marginally over the second half of 2020. The overall vacancy rate increased from 6.4% to 6.9%. The increase was largely confined to the secondary market which saw vacancy reaching 8.7% whilst conditions at the prime end of the market remained tight with a vacancy rate of just 1.0%
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Tight market conditions and strong tenant demand has elicited a response from the capital’s development sector. The capital now has approximately 48,249 sqm of space currently under construction, 76.0% of which is subject to tenant precommitment.
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Environmental sustainability is becoming an increasingly important factor for tenants when considering their accommodation options. This has been well illustrated by the government which has mandated that from 1st January 2021, agencies are required to ensure, when entering or renewing a lease, that the subject property has a minimum 4-star energy efficiency rating.
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The limited number of prime quality investment assets being brought to market has driven further yield compression with new record yields achieved. Listed property vehicle Stride Property acquired 20 Customhouse Quay (Deloitte House) for $228 million, reflecting a yield of 4.5%. The 5 Green Star rated building was completed in 2018 and is 100% occupied.
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Prime gross face rents remained steady over the year for like for like properties. New benchmark gross rents approaching $900 per sq m are expected upon completion of new developments. Current average prime gross face rents sit at $615 per sq m and average secondary rents at $338 per sqm.
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