"The office market, in particular, is undergoing a significant transformation towards better quality, seismically resilient new buildings, or major investment in existing stock to strengthen and improve quality.
"This means rents have risen, notably at the premium grade, to levels required to actually drive the quality required.
"Traditionally, Wellington 'prime' rents have remained lower, or lagged behind the levels needed to justify new builds."
The Government now occupies approximately half of the entire CBD office stock, providing a strong backbone and the strongest possible tenant covenant to investors.
Chadwick says shortage of available land to build new developments is also contributing to the falling vacancy rate.
"Unlike Auckland and Christchurch, Wellington doesn't sprawl very efficiently into neighbouring suburbs where office locations still make sense. So investors see a captive and geographically constrained investment pool.
"Basically, from an investment point of view, Wellington has been too cheap for too long and is now playing catch up."
In the industrial sector, Wellington's vacancy rate has reached 1.5 per cent, representing just under 39,000sq m of space.
This is the lowest result recorded since the annual Colliers survey began a decade ago.
The research reveals that new industrial supply has been constrained by a shortage of available and suitable land for development. New builds are predominantly owner-occupied.
Major infrastructure development such as Transmission Gully is a significant catalyst to the upswing in demand across the wider Wellington region.
Low vacancy and strong tenant demand will continue to put upward pressure on rents. Yields will continue to firm through 2019 due to the lack of available stock for sale.
In the retail sector, Wellington experienced a 16 per cent lift in retail spending in the last two quarters of 2018. On an annual basis, spending was up 3.7 per cent.
