Big pick up in industrial leasing

Big pick up in industrial leasing

A strongly performing regional economy and relocations resulting from earthquake damage have produced the highest level of industrial leasing activity in Wellington in many years.

Bayleys Wellington’s industrial team recorded an 80% increase in leasing turnover last year compared with 2015, according to industrial director Fraser Press. “There was a particularly big jump in leasing activity late last year, some of which was the result of the earthquakes,” he says.

“Although the majority of damage reported has affected office premises, the industrial sector has also suffered a degree of disruption, particularly from damage to internal componentry such as racking systems. This has necessitated the relocation of a number of tenants on a short to medium-term basis in most cases. “However, the biggest factor behind the industrial leasing market’s big pick up has been the improvement in the economy and the associated growth in business confidence that goes with that. Everyone is very positive about the future of Wellington despite the recent earthquakes,” he says.

Mr Press says strong leasing activity evident in 2016 has carried on into this year with tenants also having to compete with owner occupiers making the most of continuing low interest rates to borrow to buy empty buildings.

A combination of these factors has pushed the amount of empty industrial space in Wellington and Lower Hutt to its lowest level since 2008, according to the results of Bayleys Research’s latest industrial vacancy survey.

Covering Seaview, Petone, Ngauranga, Grenada and Miramar/Rongotai, the vacancy rate has declined to just 4.5%, continuing a downward trend which has been apparent since vacancy reached a post GFC peak of 7.5% in 2012. This is the lowest vacancy level recorded by Bayleys Research since 2008 when the rate sat at just over 3%.

“The continuing uptake in industrial business accommodation reflects the strong performance of the Wellington economy over the past two years,” says Ian Little, Bayleys Research’s national manager. “This has been driven by expenditure on major infrastructure such as the Northern Corridor roading project, booming ICT and film sectors along with strong results also from the manufacturing sector. The latest Business Demography Statistics released by Stats New Zealand show the total employee count in the Wellington region has surpassed its pre-GFC peak for the first time.”

The Wellington region’s economy grew by 3.1% over the year to September 2016 according to Infometrics’ most recent quarterly report on the regional economy. The report also highlighted the fact that unemployment had fallen to an annual average of 5.3% having sat at 6% as recently as March 2016.

Fraser Press says in addition to the increased number of new businesses requiring industrial accommodation, expanding existing businesses and more merger and acquisition activity has also increased the demand for space.

“There’s also quite a bit of corporate consolidation going on with businesses amalgamating different divisions into one location. While in some cases they are paying a higher face rental for better, more modern premises their total occupancy cost is often lower because they are using less overall space more efficiently, with less wastage and duplication.”

Mr Press says the seismic strength of industrial buildings has been brought into focus by the recent earthquake activity. “For many larger tenants, particularly international companies, a rating of 80% of the New Building Standard (NBS) is a minimum requirement. Tenants are also increasingly demanding full engineering seismic reports as opposed to Initial Evaluation Process (IEP) reports.”

Unprecedented number of big leases

Mr Press says a good indicator of just how much confidence there is on the industrial sector at present is the unprecedented number of large leases being negotiated The four largest leases conducted recently by Bayleys’ industrial leasing team had combined gross rental income of approximately $4,140,000, Mr Press says.

The largest grossing lease, at 147 Gracefield Road, Seaview encompassed 7,500m² of high stud modern warehousing, with a stud height of 8.8m to 11.5m, a 1,406m² canopy, 435m² of offices plus a truck parking space and a hard-stand storage area of 6,686m². This transaction involved the relocation of The Information Management Group due to seismic damage at their Porirua premises.

“The existing tenant, whose lease had expired, moved out one day and the new tenant moved in the next, which is a good indication of just how active the market is at the moment,” says Mr Press who negotiated the lease. Another big transaction involved one of New Zealand’s largest printing companies Printlink signing a new lease on a 9,985m² building on 1.19 hectare site it occupies at 33-45 Jackson Street, Petone. “They engaged a consultant to assess what is becoming an increasingly limited supply of large-scale accommodation options available in the market and decided to stay where they are, taking a new four-year lease from the expiry of their current lease in May next year,” says Mr Press who also negotiated this transaction on behalf of the property’s owners Hodge Group.

At 196 Middleton Road, Johnsonville, L.G. Anderson Transport has amalgamated from a number of sites into 7,200m2 of warehousing with a 6.75m-7.75m stud height, 896m2 of office and a 3,000m2 yard, transacted by Mark Hourigan and Richard Faisandier.

Meanwhile Fraser Press and Mat Gibbs have negotiated a six-year lease of a vacant two-level 3,569m2 commercial building at building at 531 High Street, Lower Hutt to Kiwibank which was looking for a building to relocate its call centre to as a result of the earthquakes.

In another sign of more positive times, all but 5,000m2 of 25,000m2 of industrial floorspace left vacant by the departure of Unilever from its long-term headquarters at 476 Jackson Street, Petone has been leased up. “The new owners of the property, the Prime Property Group, have achieved substantial success in leasing down the premises, which provides another illustration of the current strong demand for good quality industrial space,” says Mr Press.

The two most recent leases have been concluded by Paul Cudby and John Pritchard at a total gross rental income in excess of $900,000. Crown Worldwide NZ has leased approximately 3,500m² of warehouse and office space while Spicers Paper NZ has leased 2,700m² with a new office fit-out.

The Bayleys Wellington industrial team has also concluded three leases to government departments with a total rental income $892,000, two on them the result of earthquake related relocations. One of these, negotiated by John Pritchard, involved a lease of 2,500m² of warehouse space in Glover Street Ngauranga for the storage of furniture for a department having to move out of a large CBD office building.

Further north at 1 Jepsen Grove, Upper Hutt, 3,300m2 of fully sprinklered column free high span warehousing with 12m high stud at apex and 58 car parks previously occupied by IRD has been leased by Fraser Press Te Papa.