New Zealand State of Commercial Real Estate Leasing Report 2024

New Zealand's Commercial Real Estate Leasing Trends in 2024

Lease Commitments Increase in NZ Commercial Real Estate Market in 2024, Led by Office Sector.

Office Average Lease Lengths Rise by 29%
Growing Preference for Extended Office Lease Terms
5 to 10-Year Office Leases Increase by 56%

The latest NZ State of CRE Leasing Report 2024 reveals a notable shift towards longer lease agreements across various asset classes. In this article, we delve into the key findings of the report, highlighting trends in office, retail, and industrial leasing.

Office Lease Trends: A Significant Shift

The average length of office leases has increased by 29%, rising from 27 months in Q1 2023 to 35 months in Q1 2024. This surge is driven by strong demand for prime office spaces in major cities such as Auckland, Wellington, and Christchurch, as well as by landlords' willingness to offer favourable lease terms to secure longer commitments from tenants. This strategy helps landlords reduce their risk of increased vacancies in a high-interest rate environment.

Leases lasting 5 to 10 years have increased by 56%, and those extending beyond 10 years have tripled compared to Q1 2023. In contrast, short-term leases of 12 months or less dropped by 34%.

This surge in lease lengths can be attributed to several factors:

Hybrid Work Models: With the widespread adoption of hybrid work arrangements, companies are securing stable office leases to provide consistent workspaces for employees who split their time between home and office.

Prime Location Demand: Major cities like Auckland, Wellington, and Christchurch are seeing heightened demand for prime office spaces, compelling tenants to commit to longer leases to avoid frequent relocations and secure high-quality work environments.

Landlord Incentives: Landlords are offering favourable lease terms to attract and retain tenants, aiming to secure longer commitments. These terms help reduce operational costs for tenants, creating a mutually beneficial arrangement that encourages extended leases.

Retail Lease Trends: Gradual Recovery

After years of decline, the retail lease lengths have rebounded with a 13% increase in Q1 2024, averaging 44 months compared to 39 months in Q1 2023. This recovery reflects renewed commitment to physical retail spaces despite the current economic challenges created by high interest rates.

Industrial Lease Trends: Strong Demand Driving Longer Leases

The industrial market saw an 11% increase in average lease lengths, reaching 39 months in Q1 2024. This persistent demand-supply imbalance, driven by strong demand for premium industrial space, not only drives up rents but encourages tenants to secure longer leases.

Tom Wallace, CEO of Re-Leased, comments:

"New Zealand Commercial Real Estate is seeing a shift towards longer lease commitments in 2024. Businesses are recognising the value of securing prime locations and the stability that longer leases provide. It also highlights a willingness from landlords to negotiate and offer favourable lease terms in exchange for a longer commitment from their tenants as they prioritise low vacancy rates low over maximising rental rates."

This data has been collected, anonymised and aggregated from over 40,000 active tenancies. All data that has been aggregated for this report is in line with the Re-Leased Terms and Conditions as at the time of publishing.