Is Wellington the best place to invest in commercial property?

At the end of 2016, the Kaikoura and Wellington regions were struck by a 7.8 magnitude quake. As a result, there were over 2,500 insurance claims for business interruption and commercial material damages, two thirds of which came from Wellington, according to Insurance Council data. 

These claims were worth roughly $600 million in Wellington alone, speaking to the scale of property damage in the capital. Fast forward to 2018 and the city is still facing a shortage of commercial property due to quake damage.

Thanks to a healthy economy this shortage has shaped Wellington into one of NZ's best commercial property locations for investors. 
 

The economy behind Wellington's commercial property market

Despite losses in income and increased costs due to the earthquake Wellington's economy is thriving. The Infometrics Wellington City Economic Monitor shows that most indicators are improving:
●    At 4.6 per cent, unemployment is at its lowest in six years.
●    Residential and non-residential building consents are up by 15 and 24 per cent, respectively. 
●    Traffic flows, house prices and car registrations were also up. 

Furthermore, economic growth was at 2.5 per cent during the year ending June, which indicates that demand for commercial property is solid and likely to continue strengthening.

All indicators point to Wellington being one of New Zealand's best commercial property locations for investment. 

This growth and economic activity has exacerbated the supply shortage in Wellington's commercial property market. 

 

 

One of NZ's best commercial property locations

All indicators point to Wellington being one of New Zealand's best commercial property locations for investment. The imbalance of supply and demand is demonstrated by Infometrics data which estimates that commercial office properties in the city have a vacancy rate of only one per cent. For reference Christchurch's vacancy rate is 20 per cent, and Auckland's is four per cent.  

What's more, almost 2,775 residents from overseas moved to the city during the year ending March 2016, according to Council data. This is the second year running where net migration has increased - an indicator that the economy and the demand for commercial property may continue to grow. 

When you consider the large public sector presence here, as well as the growing ICT industry, it's hard to imagine the commercial market faltering any time soon.
 

Does Wellington have the best rental yields for commercial property?

Demand exceeds supply for all classes of commercial property in Wellington, with prime office space being particularly short. While there are several developments in the pipeline, most of the best assets are already pre-let and the rest will be completed as late as 2019.

For that reason, the current trends in Wellington commercial property are likely to continue. The average yield for office space in the city hovers around seven per cent, with scope for 10 per cent capital gains over the next few years if you buy well, Infometric's data shows.  

These may not be the best rental yields for commercial property in New Zealand, however the potential for capital gains more than makes up for that. With a net return of 17 per cent plus, risks from latent quake damage, or Wellington's economy slowing shouldn't deter investors either. 

Demand exceeds supply for all classes of commercial property in Wellington. 

Considering the high level of demand office space here is relatively affordable. Realestate.co.nz data shows that the average asking price for commercial property in Wellington is $3,541/sqm - far less than the average price of $4,303/sqm in Auckland. There was however, only 31,594 sqm available as of September, so investors may need to spend time searching to find something viable.

To start your property search in Wellington, or anywhere else in New Zealand, visit realestate.co.nz - the country's biggest online property listing resource.