Plenty of commercial building work in the pipeline apart from retail

Property / analysis

Almost 100,000sqm of new office space consented in the first quarter, but less than 26,000sqm of new retail space

15th May 24, 12:30pm by Greg Ninness

Residential building work might be heading for the doldrums but the commercial construction sector could remain reasonably buoyant for some time, according to interest.co.nz's latest analysis of commercial building consent trends.

The office sector looks to be particularly buoyant with 98,587 square metres of new office space consented in the first quarter (Q1) of this year.

That's the sixth highest amount of new office space consented in any quarter of the year, based on Statistics NZ data, since interest.co.nz began compiling the figures in 2010.

The figures also suggest new offices are getting bigger and more expensive.

The average size of the offices consented in Q1 this year was 1896 square metres, the second largest average size in any quarter since 2010.

And of course they are not getting any cheaper.

The average estimated build cost per project was $6,913,671 in Q1, a record high.

The Wellington Region was one of the main drivers of the high level of office consents, with just six office projects consented in Wellington, providing 25,666 square metres of new office space.

That gave them an average size of 4278sqm and an average build cost of $12,587,028.

The amount of new warehouse space consented, eased back from a record 289,660sqm in Q4 2023, to 186,826sqm in Q1 2024.

Although down from the Q4 high, that's still a respectable amount of new work being consented, with a total estimated value of $307.74 million and an average estimated build cost of $3.27 million per project.

Similarly, there was a very respectable 107,437sqm of new factory/industrial space consented in Q1 this year.

Both the average size (1414sqm) of the factories/industrial buildings consented in Q1 this year and the average build cost ($3.5 million) were at record highs since the series began in 2010.

Retail building projects continue to the laggards of the commercial construction sector, with just 25,708 sqm of new retail space consented in Q1 this year. That's the third lowest in any quarter since 2010.

By comparison, the amount of new retail space consented in Q1 last year was 50,094sqm, which was pretty normal.

So it's likely that any firms involved in the development of new retail premises, whether they be architects, builders or shopfitters, will start to find the going getting tougher, as new retail constriction projects start to get fewer and farther between.

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33 Comments

by Hamish | 15th May 24, 12:42pm 1715733777

Do you include the additional floor space at the International Mail Centre (and associated distribution/delivery hubs) as part of retail?

by IT GUY | 15th May 24, 12:48pm 1715734127

The retail space in between Milldale and Mill Water seem to have quickly ground to a halt. (The space below the new Mitre10, itself a ghost town most days) I suspect this might get delayed a bit here.

by Yvil | 15th May 24, 1:04pm 1715735051

It sounds surprising that consents for new office space is so strong, when office space vacancies are rising. I suppose A grade office space (i.e. new) is holding up pretty well, with B, C & D grade suffering most.

by J.C. | 15th May 24, 2:38pm 1715740714

It sounds surprising that consents for new office space is so strong, when office space vacancies are rising.

Doesn't make a lot of sense does it Dr Y. We're witnessing a CRE apocalypse globally but here in Nu Zillun all is dandy.

I was reading about Japan CRE. About every 12-15 years, the equivalent of the entire central Tokyo`s Grade A office supply comes onto the market

by Mr Ed | 15th May 24, 7:03pm 1715756631

Even if 25000 m2 were actually built( in Wellington) it’s not a lot of space . The Crown will shed 6X plus that via their public sector cuts

by Rumpole | 17th May 24, 5:41pm 1715924476

With working from home still strong and a looming recession im surprised that offices are so strong, recent USA office Building in Manhattan had its mortage sold at 90% discount by Blackstone real estate investment trust - interesting!

by HouseMouse | 15th May 24, 1:13pm 1715735638

I would NOT count on a high proportion of these consented projects proceeding over the next 1-2 years.

by Pa1nter | 15th May 24, 3:40pm 1715744400

The follow through rate of commercial consents being built is way higher than residential.

Although if the entire economy implodes you may end up being right.

by HouseMouse | 15th May 24, 4:00pm 1715745614

In ‘normal’ economic times…

by Pa1nter | 15th May 24, 4:10pm 1715746255

Including recessions, a normal part of an economic cycle.

Put it this way, during the last GFC, commercial construction held up, and consented projects went through to break ground. There's a way higher amount of inertia involved in the commercial construction pipeline than residential. It's rare a commercial consent gets lodged just because the developer/builder wants to have a nibble, they're usually fairly close to pulling the trigger.

The only sector that slowed, was relocation churn of commercial office space in the Auckland CBD - i.e. one firm moves to another building, they do up their new premises, and the old premises gets done up for a new tenant. Which is mainly wasteful trend following.

by HughJorgan | 15th May 24, 8:41pm 1715762484

Commercial is more financially driven and thus rational. They cut back last year so I would expect this is simply preperation for better times.

by Pa1nter | 15th May 24, 10:44pm 1715769853

A recession affects industry in varied ways. Some sectors feel nothing, some get decimated, and others get an uptick.

"Commercial" also includes services and utilities that aren't directly tied to fickle consumer habits.

by Rumpole | 17th May 24, 5:43pm 1715924632

We may be in technical recession but the real storm is some way off.

by VeteranGolfer | 15th May 24, 1:18pm 1715735900

Probably it'll be civil servants in Wellington who'll be moving into those nice new expensive offices.

by HughJorgan | 15th May 24, 1:51pm 1715737906

These won’t get built. The amount of vacancy is piling up.

During the GFC, there was about 2 or 3 years where no commercial assets over $15 million sold. I don’t see that this time, as rates tanked and let owners off the hook. This time there will be forced sales and those with cash are better to buy not build.

by Mystery | 15th May 24, 2:01pm 1715738501

That seems very strange in the light of the fact that demand for office space is "supposedly" decreasing across the developed world, while the demand for residential is increasing.

Why are contents going in the exact opposite direction?

by Pa1nter | 15th May 24, 3:45pm 1715744746

Partially because many commercial developers/businesses have been pausing much activity over the COVID era, due to the adverse construction environment.

Do your building outside of a residential construction boom, supply shortages and rampant cost escalation.

by Hamish | 15th May 24, 2:17pm 1715739423

Is any of this to do with earthquake prone buildings?

by HouseMouse | 15th May 24, 2:39pm 1715740752

So Q1 data - lagging. Many of those consents would have been lodged Q4 2023, some even Q3 2023. Big change in the economic / political environment since then.

by Pa1nter | 15th May 24, 3:43pm 1715744627

Much of commercial construction is based on business modelling and strategies involving many years, if not decades. Rather than knee jerking to quarterly reports.

They're also often years out being completed from the consent date.

by HouseMouse | 15th May 24, 4:02pm 1715745730

What if a good chunk of that consenting in Wellington is now redundant ? You throw gross generalisations around all the time

by Pa1nter | 15th May 24, 4:16pm 1715746565

Yep, I do throw gross generalisations around.

Otherwise one ends up arguing for exceptions, rather than rules, and the statistical probably of forming a correct view ends up reducing exponentially. It's also the foundation of much anxiety.

What if my plane crashes?

What if I get eaten by a shark?

What if my toaster blows up in my face?

These things are all possible, but also unlikely enough to get excluded from your decision making process.

by HouseMouse | 15th May 24, 6:34pm 1715754879

Gross generalisation and assumptions characterises most economic analysis. That’s a big part of the problem. More nuance is required. Yes, consent numbers is often/usually a good proxy for what actually gets built. But not necessarily in recessionary times.

You refer above to the post-GFC period. Yet office market dynamics were significantly different to now. As was the economic context. The OCR was slashed - it’s not this time, because of inflation. We also have the whole WFH factor disrupting the sector.

And you really don’t think the significantly changing dynamics in Wellington over the past 6 months won’t have a significant impact on office construction???

by Pa1nter | 15th May 24, 6:59pm 1715756374

Gross generalisation and assumptions characterises most economic analysis

And much personal analysis, for good reason. The exceptional perspectives are more often wrong.

You refer above to the post-GFC period. Yet office market dynamics were significantly different to now.

Well, you talk about nuance, but ask yourself this then. After several years of working from home, and commercial office vacancies, which are not a secret, why in late 2023 is so much office space being consented?

It's because much work will still be done in offices, and much of what's consented isn't just for a punt, it's being commissioned for a pre-established purpose, often by the occupier.

And you really don’t think the significantly changing dynamics in Wellington over the past 6 months won’t have a significant impact on office construction???

Maybe some effect, but without knowing how much of the consented space is for public or private tenants, it's an unknowable.

You're taking headlines and thinking that's some sort of over-arching theme that's all encompassing.

by Rumpole | 17th May 24, 5:50pm 1715925035

Vacancy rates - Auckland 12%/Wellington 7.5% Christchurch 6% all rounded. There is comment on moving to better offices which is understanable but when the s*it hits the fan vacancies will increase and quality of surroundings less important than staying in business.

by Final Account | 15th May 24, 4:34pm 1715747683

This is true, we've got clients that have sat on land since 2019 with a consented design finally pushing go end of last year. Will complete early 25.

Few other clients put the handbrake on with OCR skyrocketing in 22, since its plateaued in the last 9 months they have also tentatively pushed go late last year, with a lot of negotiating and concessions on both sides.

Interesting bit of info is we (main contractor) are delivering commercial and industrial warehouse's for the same m2 rate build cost as 2018, with the same margins. Land/council/consent/consultants costs up the wazoo of course, I'm guessing 10-30%+.

Gives you an idea of how the real economy performs vs the FIRE economy.

by Pa1nter | 15th May 24, 4:52pm 1715748738

This man knows.

I've got a number of clients working out of 10+ year old premises that've doubled or tripled in operations who're bursting at the seams, who haven't wanted to build in the last 4 years.

by HouseMouse | 15th May 24, 6:40pm 1715755221

‘This man knows’

What he has demonstrated is that parties can sit on consented developments for quite a while when there is uncertainty / volatility around. And there’s been plenty since 2019.

That’s contrary to your point, on my point, that most consented commercial developments push ‘go’ pretty promptly, even in uncertain / recessionary times.

by Pa1nter | 15th May 24, 7:32pm 1715758333

The projects are now going ahead though, in your timeframe of thunderbolts and lightning. While we are still in somewhat uncertain times, it's a far cry from the COVID era, where commercial projects still went ahead.

If it's any consolation, I've been wanting to take a long overdue extended sabbatical from this racket, as in around Feb-March it looked as if things were running out of gas. Now it's looking to do the inverse, there's a crazy amount of deferred projects now coming out of the woodwork, because the clients can't wait much longer, and the construction environment is now far more stable (with some surplus capacity too, thanks to residential tanking).

by HouseMouse | 15th May 24, 7:53pm 1715759629

Ok we will agree to disagree. And I will say that you continue to look for an argument, all the time. It’s tiring.

by Pa1nter | 15th May 24, 8:41pm 1715762469

I'm offering a counterpoint, based on experience and a wider view. Otherwise the place is just a collection of people nodding in agreement at concepts and prophecies which may sound reasonable on the surface, but are often wildly out of touch with actual reality.

Most of my views are fluid based on taking on better information. Discussion forums like this have helped shape and change my views over the years, and can be of real value, if you're not just fishing for validation and likes.

by Rumpole | 17th May 24, 5:54pm 1715925260

What is your wider view of recession - technical is all we get/soft landing/just the usual cycle or a bomb?

by Matt_09 | 15th May 24, 3:49pm 1715744965

Do these stats include the new retail being developed at the airport? Some serious square meterage there.