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WELLINGTON INDUSTRIAL ANNUAL 2007

WELLINGTON INDUSTRIAL

Tightly held industrial property has resulted in vacancy levels in the Wellington region remaining at historically low levels according to the results of the latest Bayleys Research industrial vacancy survey.

The overall vacancy rate remained almost unchanged from last year at just over 3%. The vacancy rate across the main industrial precincts of Miramar, Rongotai, Ngauranga, Grenada, Petone and Seaview has now sat at below 4% for four years illustrating the ongoing strength of the industrial market in the capital.

Vacancy rates fell in Grenada, where there is now no substantial vacant space, Ngauranga and Seaview, while rising in the eastern suburbs, where the transition from traditional industry to the film industry and retail continues, and marginally in Petone.

 

Eastern Suburbs The rise in vacancy rates in the eastern suburbs is a reflection of the changing business environment in the area. In recent years traditional industrial users have been vacating the area while the film industry and retail users have become more prevalent. The film industry dominates the Miramar area occupying approximately 75% of the “industrial” space included within the survey area.

The development of the Airport Retail Park, Miramar Metro, New World supermarket and other retail developments over recent years has resulted in 30,810m² of property being removed from the survey.

The exodus of traditional industrial occupiers has continued over the last year with companies such as Fuelquip, Interlock Industries, and Holyoake Industries relocating.

The departure of Holyoake Industries from their property in Kingsford Smith Street will make way for expansion of the Airport Retail Park while Bunnings have purchased adjacent premises for development of a bulk retail outlet. Expansion of the Airport Retail Park by the Airport Company is proposed to take place in two years and, until that time, the Airport is looking to lease the premises, previously occupied by Holyoakes, on a short term basis. It has been reported since the date of the survey that approximately 30% of the space has been leased.

Another major influence on the Eastern Suburbs market is the preponderance of leasehold land. With the change in land use patterns witnessed in recent years, land values in the area have escalated sharply which is set to impact upon ground rents when they are next reviewed as they are calculated as a percentage of freehold value. It is estimated that ground rents in areas such as Kingsford Smith Street could rise by over 1,000% in 2009. Local developers agree that the escalation in ground rents will accelerate the transition from industrial use to retail in the area.

Grenada The precinct with the lowest vacancy rates in the region is Grenada with less that 1% of its industrial space currently available to let. The area benefits from easy access to State Highway 1 and many properties have large yard areas which meet the requirements of storage, distribution and logistics companies, a sector of the market which has expanded significantly in recent years.

The immediate pressure on land supply in the area looks set to be alleviated in the short term future following the sale of 7,900m² of industrially zoned land, effected by Bayleys Wellington at approximately $275 psm, which it is proposed will be subdivided for release to the market in early 2008.

Ngauranga has also experienced further leasing activity since the 2006 survey which has resulted in the vacancy rate falling slightly to sit just above 4%. The precinct comprises a mix of property types and ages and therefore activity in this market reflects well the current preferences of occupiers. The latter point is demonstrated by the fact that vacancy tends to be concentrated within older buildings or those which have a disproportionate mix of office to warehouse space. Ease of access is also an important feature with those buildings which have restricted access also proving more difficult to let.

By comparison more modern buildings with clear warehouse space, ease of access and reasonably sized yards continue to attract strong levels of tenant enquiry which has continued to force rentals upwards. Results of recent lease deals and rent reviews have shown growth in warehouse rentals of approximately 20% over the last three years. Prime space is now attracting warehouse rentals of up to $160/m² per annum. The increase in rentals is leading to tenants reviewing their leasehold options with a view to insulating themselves, as far as possible, from future rental increases. This is well illustrated by the recent decision by B.J. Ball to negotiate the renewal of their lease two years prior to the termination of their original agreement.

The disparity in rentals between older style premises and newer design builds evident in Ngauranga is common throughout the region with a recent letting on Old Hutt Road in Thorndon demonstrating the range. Older properties in the area attract overall rentals in the region of $130/m², however, a new build property at 71 Old Hutt Road achieved an overall rental of approximately $200/m².

 

Seaview The region’s largest industrial precinct Seaview has experienced little movement in the last year with vacancy rates sitting at approximately 2.5%. As with other established industrial suburbs, it is proving significantly more difficult to lease older style buildings when they become vacant. In recognition of this, “professional” landlords are increasingly looking to undertake extensive refurbishment projects in order to bring premises in line with occupier requirements.

Petone In Petone vacancy climbed by approximately one percentage point to just over 2.5% as companies seeking properties with better access and more yard space have relocated on termination of their leases. Continued high levels of uptake by owner occupiers, however, has held the vacancy rate down. The trend towards owner occupation in the area has reduced the amount of property being brought to the rental market which has resulted in a recent increase in rental levels.

Kapiti Coast As land supply in established precincts becomes restricted the Kapiti Coast is viewed by many as an alternative destination for industrial use. At present industrially zoned land is scarce, however,the owners of Paraparaumu Airport, Paraparaumu Airport Holdings Limited and Paraparaumu Airport Limited, have submitted a formal request for a private plan change which if successful would permit the formation of a mixed use zone of approximately 50 hectares allowing further business development in the area.

The local council is supportive of the proposal and the employment opportunities it brings to the area. The local authority has therefore notified the request for the plan change which is now to be considered by a panel of three independent commissioners with the hearing scheduled to begin in November.

Strong demand for bulk retail space has resulted in a number of examples of older industrial premises being successfully converted, a change which has given a new lease of life to, and upgraded the appearance of, ageing premises. In Te Roto Drive eight older style buildings have recently been purchased with the five units benefiting from road frontage being refitted with retail facia. An initial letting to Configure Gyms has been completed and there are reports of strong interest in the remaining units