Wellington’s commercial property market is expected to improve now interest rates appear to have peaked, Ben Castle, Tommy’s Group CEO, says.
The Wellington sector has experienced lower transaction volumes so far in 2023, largely due to the impact of rising interest rates. Consequently, market activity has been less robust.
However, the recent Official Cash Rate announcement has signalled more certainty, suggesting that confidence will start to return, and market activity will pick up.
Ben Castle, CEO of Tommy’s Real Estate, anticipates this resurgence will occur later this year, though he acknowledges that the market still faces challenges. “Property valuations will need to align with both buyer and vendor expectations, as both parties will be anticipating the timing of any downward movement in interest rates,” he explains.
Castle points out that Wellington’s office property lease market remains positive, driven by consistent demand from the government and corporate sectors. “Premium-grade buildings are more sought after as Wellington grapples with seismic regulations. These regulations will increase vacancy in certain areas of the Wellington CBD and its fringes, where building owners have yet to sufficiently strengthen their properties to attract tenants. Conversely, buildings that have undertaken full seismic refurbishment are likely to experience lower vacancy rates.”
Historically, Wellington has been a ‘gross’ lease market. However, the increased cost of insurance and rising council rates have triggered a shift towards ‘net’ leases as the preferred option. The lingering effects of the Covid pandemic are evident in the CBD, where the ‘work from home’ trend persists. This has led to an increase in office space being sublet as tenants re-evaluate their work environments.
Castle acknowledges the challenges in the commercial market but remains optimistic about future activity.
“As more clarity emerges on interest rate and inflation movements, we expect to see an increase in activity. Subject to affordability and appropriate due diligence, commercial property remains a sound investment. The tax deductibility and absence of capital gains tax implications allow for good returns, whether the strategy is focused on yield, growth, or both.”
Tommy’s Commercial, according to Castle, operates across all property sectors in the Wellington and Greater Wellington region. “From retail to industrial, office to land, Tommy’s Commercial has the expertise to assist.”
In summary, despite the current challenges in Wellington’s commercial property market, there are signs of optimism. With the right strategies and a keen understanding of market dynamics, investors can position themselves to benefit from the expected upturn and secure solid returns on their investments.
