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Bayleys Research
DUNEDIN WANAKA QUEENSTOWN REGIONAL REPORTDUNEDIN COMMERCIAL & INDUSTRIALA number of positive drivers were reported in Otago Regional economic data for August 2006. The Otago Outlook reported seasonally adjusted retail sales increased 2.4% over the previous quarter, the number of guest nights purchased rose 4.7% compared to a year ago, and house sales were up 4.7% on volume and 0.8% on median price for the quarter. While some of these gains are more gradual than those experienced during 2004-5, and show a gentle easing of growth levels, these indicators remain positive after a sustained cycle of strong growth. Commercial properties in Dunedin continue to exhibit steady leasing activity and strong inquiry from tenants. Most space available to lease in the central area is of a medium size, approximately 150 to 250 square metres with almost no larger areas available. The lack of large vacant spaces shows a healthy local economy with supply and demand well co-ordinated. A trend in some Dunedin buildings is a move from net leases to gross leases. This is different from other parts of New Zealand, which have been moving to net leases over recent years, but simplifies the bottom line cost and line item operating expenses to the tenant (for example insurance or rates). While the end rent should be identical for either lease type, gross leases can shift some annual price increases to the landlord, but usually only until the next rent review. The Harbour Basin area, currently well occupied with industrial warehouses, is undergoing redevelopment consultation with a formalised process and plan change expected to begin in February 2007. A significant portion of the Harbour Basin land is owned by the commercial property arm of Otago Regional Council, through Port of Otago Ltd, although the leasehold interests are held by tenants. Parts of the Southern Endowment industrial area are already experiencing rental pressure changes as bulk retail and industrial-showroom uses establish close to the city centre. The gradual intensification will put pressure on nearby warehousing supply but the Habour Basin redevelopment may provide some office and retail space required by a growing city.
Other industrial areas include Kaikorai Valley where rents are approximately 25% lower than in the central city at $50 to $80psm. The Mosgiel / East Taieri industrial areas are mostly occupied with design build options preferred by existing landholders instead of speculative construction. Bayleys Research expects some rental growth is possible as space remains tight in the central industrial area. With many properties closely held, and providing solid returns, investment opportunities will remain limited with the scarcity of investment stock generating strong sale values.
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