Quality demand, seismic issues rise
Occupiers are increasingly seeking higher-quality, modern buildings to attract staff back to the office and address obsolescence issues in older buildings, according to a new report from Bayleys.
Tenant mandates for sustainable buildings are cementing this trend.
“Occupiers are seeking higher amenity and modern buildings,” the report said, indicating a shift towards better quality work environments.
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Shift in office space usage
Post-pandemic work patterns are resulting in fewer desks but more collaboration spaces.
Many organisations are revisiting their work-from-home policies to increase office attendance.
“Organizations are needing fewer desks but more collaboration space,” Bayleys said.
Seismic challenges in Wellington
Seismic issues are significantly affecting some markets, particularly the Wellington CBD.
Poor assessment results are making some buildings largely untenantable. The potential changes to seismic assessment standards are causing landlords to delay investments in strengthening.
“Seismic challenges are heavily influencing some markets,” especially in Wellington, the report said.
Rental market dynamics
The flight to quality is leading to low vacancies and rental growth in modern properties in desirable locations.
Older or poorly located properties are needing higher incentives to maintain rents amid weaker demand. This trend indicates a bifurcation in the rental market.
Stabilising yields and construction costs
With inflation and long-term interest rates peaking, yields are likely to stabilise after a period of softening. Despite fewer sale transactions, agent sentiment suggests the investment market remains weak.
“Sentiment amongst agents indicates the investment market remains relatively weak,” Bayleys reported, despite significant corrections since 2021.
Persistently high construction costs mean higher rents are required for new developments to be feasible, though signs of softening costs may improve viability.
Download full Bayleys report here.
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