JLL's senior research analyst, Daniel Longmire, says the first quarter of 2019 has seen demand and supply for commercial real estate in Christchurch "effectively reach an equilibrium".
Releasing the First Quarter 2019 Market Snapshot research report detailing the state of the Christchurch's office and retail markets, Longmire says office accommodation in the Christchurch central business district (CBD) has experienced relatively persistent demand.
"However, the majority of the occupiers that were displaced by earthquakes have been able to relocate back into the CBD core and demand is now largely satisfied. Though this relocation is typically to the detriment of fringe and suburban stock, this has created opportunities for tenants wishing to relocate or move up the grade spectrum outside of the CBD," says Longmire.
"While several projects edged closer to completion in the CBD, these are primarily pre-leased by anchor tenants and will not deliver significant vacancy."
Longmire says compared to recent years, 2019 has seen a significant drop in the development pipeline in the office sector with most of the stock taken by the 2011 earthquakes now having been rebuilt.
"With rental rates softening to sustainable levels, occupier demand being largely satisfied and rising construction costs, no more major projects are forecast to enter the market after the current pipeline reaches completion," says Longmire.
"New builds are now struggling to attract large anchor tenants which are required before commencement."
According to JLL's report, rents in the office sector are continuing to face downward pressure.
Prime CBD office rents fell from $340 per sq m to $325 per sq m (down 4.4 per cent) and secondary rents from $243 per sq m to $213 per sq m (down 12.4 per cent) during the first quarter of this year.
Suburban office rents are now at $213 per sq m (down 3.4 per cent) and $150 per sq m (down 11.8 per cent) respectively, according to the JLL report.
"With post-quake demand now largely satisfied, rental rates are in the process of being corrected, moving back to equilibrium levels," says Longmire.
"Yields were relatively stable, with minimal increases from last quarter. Average yields for primary and secondary space were 6.5 per cent and 7.88 per cent respectively, with suburban yields up 50 basis points to 8.5 per cent."
In terms of the retail market, Christchurch's CBD retail vacancy rates remain relatively elevated when compared to the Auckland and Wellington markets. However, Longmire says this offers a wider range of newly built stock for occupiers seeking to enter the market.
"New supply has continued trickling into the market, underpinning the rise in vacancy despite tenant uptake of a number of spaces," he says.
"With demand largely satisfied for both food and beverage, and traditional retailing, the market is not expected to see a substantial uplift in new occupier interest over the remainder of 2019."
JLL's research shows the ongoing refurbishment and new build activity in both the CBD and suburban retail markets in Christchurch means a steady stream of space will continue to exit the development pipeline.
"Refurbishment and expansion activity across malls in decentralised markets continued in the first quarter of this year, with work progressing at the Bush Inn Shopping Centre.
"The Riverside Market project and the Cashel mall retail complex in the CBD are progressing well, which will add to the growing retail offering in the city," says Longmire.
"No new large-scale projects are expected to commence in the near future, with elevated vacancy rates acting to postpone development activity."
Like its sibling cities in New Zealand, Christchurch's retail market is facing a number of headwinds that are affecting the ability of landlords to tenant property and occupiers to service rental payments at existing levels.
"Christchurch's prime CBD rents remain at the fourth quarter of 2018 levels; ranging from $475 per sq m to $1000 per sq m. Secondary space continues to struggle, a trend that is not expected to improve in the foreseeable future," says Longmire.
"CBD yields for prime properties were at 6.5 per cent and secondary at 7.5 per cent, which held firm in the first quarter of this year. Prime and secondary suburban commercial property assets softened to 6.88 per cent and 7.75 per cent respectively," Longmire says.