Commercial Office Occupiers’ Perceptions of the Office Market in Post-earthquake Christchurch, NZ

Dr Sandy Bond & Zoltan Moricz

Quake events

Quake events• Christchurch city is not on a fault line, unlike the

capital city of NZ, Wellington• The September Darfield earthquake occurred

along a previously unknown fault line, now known as the Greendale Fault

• Understanding the likely response to, & preparing & planning for, a natural disaster in an area with no recent history of such events has proven problematic

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Quake Issues

• Amongst the many issues faced by building owners & investors subsequent to the earthquakes are that the banks & other lenders are now requiring a number of reports from professionals:– structural engineers, – geotechnical engineers – valuations,

• These are adding to the cost of investing

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Quake Response• Canterbury Earthquake Recovery Authority

(CERA) was established on 29 March 2011, to lead the recovery effort  

• CERA gave the Christchurch City Council the responsibility of developing a Recovery Plan for the Christchurch CBD

• The community were asked to “Share an Idea” about the central city recovery

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Quake Response

Five key changes that the community wanted helped form the basis of the draft Central City Plan:•Green city•Stronger built identity•Compact CBD•Live, work, play, learn and visit•Accessible city

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Research Aims• Surveys have been conducted every 6 months

since August 2011 to determine changing perceptions

• This is the 3rd 6-mthly survey: – Determine occupier’s perceptions of the future: the

likelihood of relocating back to the CBD after the rebuild & the release of the Christchurch Recovery Plan

– Determine their willingness to pay for rental space in the rebuilt CBD

The Recovery Plan

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The Recovery Plan

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Stadium

Performing Arts

Library

Convention Centre

Retail Precinct

HealthPrecinct

Methodology

Survey sample:A sample of respondents was obtained from 2

sources:

1. 275 suburban office occupier contact details obtained from a physical survey of office occupiers, in August 2011

2. 368 contacts were obtained from a business database held by CBRE of CBD businesses from mid-2010

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Location of respondents

Methodology:

An online survey was developed:• Sent out Sept. 2012 subsequent to the Central

Recovery Plan being released 30 July

Response rate:• 15.4% (previous two surveys: 22% & 21.8%)

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Results: Demographics

Gender: 67% were male

• Age of respondents:

The age of respondents was older than previous surveys:

–33% were aged over 60 years

–26% were aged 50-59

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Relocations

Relocations

• Of the 41% of respondents that indicated they initially planned to relocate to the CBD, around half have indicated they have since changed their minds & will remain in the suburbs

• 3 respondents who originally planned to remain outside the CBD now plan to move in

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Reasons for moving

• Main clients, better networking in CBD • Office building in CBD is still standing / repairable.• Temporary office is either too small or of poor quality. • Wish to support the rebuild & help create a vibrant CBD.• Changing focus & aiming for a much more tourist orientated

so would like to be very central.• Require suitable professional offices in a good CBD

location, but contingent on the price.• Want to be in main financial area.

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Reasons for NOT moving• Delays & uncertainty means it is better to commit to a

suburban location for the long term.• Rents are likely to be too high for most businesses.• There is ample parking in the suburbs, compared to the CBD.• Business is now well established in the suburban location, so

there is no reason to relocate. • Reasonable rent in the current location.• The location is close enough to the CBD.• Employee-related; the staff are happy and contented in the

new location (suburban).

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Relocation plans following the release of the Christchurch Central Recovery Plan

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Location Preference

Near the Retail Precinct is most preferred location

Building Type Preferred

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Quality Preferred taking into account Rent (Total occupancy cost $/m2)

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$425-450/m2

$350 -375/m2

$225-275/m2

Note: Premium Grade pre-quake = $300

Tenants’ willingness to pay Vs indicative rents (based on likely development costs)

150

200

250

300

350

400

450

500

1 2 3 4

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ost $

per

sqm

Indicative Rental Range Occupier Price Expectations

Occpancycost expectations of occupiers

Premium Grade Grade A Grade B Grade C

This Survey Previous Survey

The rental gap for Premium & A Grade space may negatively impact on the demand for new built space although the gap is smaller compared to the previous results

31% 42%

14%8%5%

9%

0 0

58%

9%

15%

9%

0%

10%

20%

30%

40%

50%

60%

Occupy lowerquality CBD

space which isaffordable butnot ideal for

ourrequirements

Close thebusinessaltogether

Relocate toanother city

Locate outsideof the CBDwhere it is

moreaffordable

Significantlydownsize

spacerequirements

so we canafford the

higher rental

We will have toaccept the

higher rental

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Alternatives if desired office space is too expensive

Preference on the level of green rating

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Summary• This follow up survey has highlighted some topical

issues facing Christchurch office occupiers & the success of the rebuild

• Demand for locating within the CBD has fallen since our initial survey, with some occupiers still expressing frustration over the delays & disruption of moving back into the CBD

• Only 27% of the respondents have an intention to move into CBD, compared to 32% & 38% previously

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Summary• Of the 27% of respondents who plan to return to

the CBD, 60% of them could only return to CBD after a year

• This is the reverse of what was reported in the previous survey, where more than half were able to return to the CBD immediately or within the next year

• The current response may be due to the respondents extending their leases as the rebuild has been slower than expected.

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Conclusions• Although a decreasing minority have indicated they

will keep waiting until the CBD is ready, an increasing majority indicate they will commit to leases in the suburbs indicating decreasing demand for CBD space

• Tenants whose leases are coming up for renewal that may have wanted to relocate to the CBD cannot find available space there to meet their needs and so are opting to stay where they are.

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Conclusions• This research shows there will be issues for

landlords of CBD buildings to attract tenants back into the central city to make investment financially feasible

• Whilst Government at least is supporting the rebuild by committing to around 25,000 sq. m. of space, private investment will also be needed to ensure the vision of the Christchurch Recovery Plan can be realised

• However, with on-going delays & uncertainties there is growing frustration from investors.

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