30 Jun 2016

New Chch offices may struggle to find tenants

8:48 am on 30 June 2016

There are predictions some of the shiny new offices being built in Christchurch could struggle to find tenants.

Christchurch construction.

Christchurch construction. Photo: RNZ / Alexander Robertson

Rents are being discounted by up to 25 percent in the central city where construction cranes clutter the skyline and acres of steel and glass are sprouting up where once there were only vacant lots.

Conditions are ripe for an oversupply of office space in the CBD thanks to an abundance of cheap money, says associate professor of property studies at Lincoln University, John McDonagh.

"New Zealand is awash with capital looking for a place, so that makes it easier for the market to become over-supplied.

"We certainly wouldn't want to have the situation we had in Christchurch back in the early 1990s where we had so much over-supply [that] top quality buildings were vacant for a decade before they filled up."

The number of offices being built now within the four avenues is close to what was there before the earthquakes, said John McDonagh, but unlike before it was all high end and with high rents to match.

Landlords were under pressure to fill their new buildings by attracting back businesses from the suburbs, but instead of dropping rents, they were offering deals such as one years free rent.

"It becomes basically smoke and mirrors after a while but everyone in the market starts to realise that rents are perhaps less than they appear to be."

Christchurch construction.

Christchurch construction. Photo: RNZ / Alexander Robertson

So what sort of deals are out there for businesses wanting to snap up a good deal?

RNZ understands incentives are being offered in the order of 25 percent off.

Commercial real estate agent Jonathan Lyttle, whose firm is helping find tenants for some of the largest buildings inside the retail precinct, said they were more in the order of 15 percent.

"Our incentives haven't yet gone past 15 percent.

"Recently in Brisbane they've been operating at 25-30 percent of total lease value, so overall in comparison we're not overly affected."

The more space you were willing to lease, the better the deal was, Mr Lyttle said.

"If you have a thousand metre footprint and you've got a thousand metre tenant, then that's very attractive to a landlord and they're likely to offer an incentive. By the same token if you're a 200 square metre tenant, you're not going to get the same incentive offered to you.

"But certainly there are deals out there where landlords are eager to complete the process and get on with their lives."

The deals were more about encouraging businesses to break their leases on offices in the suburbs than an oversupply of office space and an under supply of tenants, said the head of office leasing for Colliers, Brynn Burrows.

"It's to get the tenants into the CBD, into these new developments as soon as possible. So it really is to provide that momentum which we're seeing in the CBD and the perceived risk by tenants has been reduced."

All of those spoken to believed the buildings currently under construction represented the sum total of the city's new CBD and that there would be no more office space built in the near future.