Industrial Workplace – August 2021
Despite Auckland’s dominance in New Zealand’s industrial property market – with much talk around the extremely low vacancy rates, escalating rentals and significant growth in sub-sectors like logistics, dark stores and data centres – there is also a proactive and thriving industrial sector in the regions.
Investors are seeking opportunities elsewhere as supply dries up in the Super City, former residential property investors are jumping on the industrial property bandwagon and new are developments are popping up around the regions.
Some of Auckland’s industrial market dynamics have migrated, with key regional centres now experiencing supply-demand imbalances, strong competition among occupiers and rising rental rates.
Robust regional economies are underpinning the strength of the industrial sector in the likes of Bay of Plenty, Taranaki and Nelson-Tasman so Industrial Workplace checked in on those markets.
Plenty of activity in the Bay
Underpinning the ongoing demand for industrial space in the Bay of Plenty’s epicentre Tauranga, are port-related services, horticultural enterprises, warehousing, transport/logistics, and other requirements of the broader export-driven economy.
The kiwifruit industry is experiencing year-on-year growth, and in the eastern Bay of Plenty, the Provincial Growth Fund has made provision for expansion of Ōpōtiki’s aquaculture industry and upgrades to important infrastructure.
The Port of Tauranga – New Zealand’s largest port and international freight gateway – reported increased profitability for the first six months of the 2021 financial year, despite pandemic-related and volatile cargo volumes and congestion issues.
In the development arena, Bay of Plenty industrial building consents rose by 102 percent to 135,816 square metres, a figure which has been only been surpassed once since 1991.
Mark Walton, director commercial and industrial, Bayleys Tauranga, says as investor and occupier appetite for industrial space intensifies in Tauranga, the physical limitations of the city are exposed, creating significant challenges.
Established industrial precincts like Mount Maunganui are in hot demand, while new-build industrial projects are gaining early pre-commitment from occupiers desperate to future-proof operations.
From a leasing perspective, landlords are pursuing longer terms and fixed annual growth clauses. Accordingly, occupiers will need to be prepared for further rental rate increases – particularly for new-builds as development costs continue to escalate, Walton says.
Walton says the widely-cited “Golden Triangle” dynamic is very real, with economic activity within the Auckland-Waikato-Tauranga boundaries pushing national firms towards the Bay of Plenty in the search for operational and logistical efficiencies.
Oiling Taranaki’s wheels
The traditional backbones of the Taranaki economy – the oil and gas sector along with the dairy industry – remain the principal regional drivers today.
The government’s 2018 decision not to grant any new offshore oil exploration permits has seen established existing players in the sector making the most of existing permits.
Austrian-owned oil and gas company OMV which owns the Maui and Pohokura gas fields and has been in the region for more than 20 years, recently invested $15 million in its New Plymouth CBD offices, further cementing its presence and commitment to the region.
Supporting the oil/gas and dairying industries are engineering and manufacturing operations and the transport/logistics sector and Iain Taylor, senior commercial and industrial broker with Bayleys Taranaki, says the industrial property sector is firing on all cylinders.
“Like the rest of the country, a shortage of industrial land is the kink in the chain and the low interest rate environment has prompted significant sales of developable industrial sites around the region,” he says.
Taylor says despite a pipeline of development underway, small to medium-sized units are still in short supply.
“While the developments that are currently under construction will go some way to filling the void in the market, demand is outpacing supply with a huge thirst for quality, purpose-built industrial premises from both owner-occupiers and investors.
Meanwhile, a large parcel of industrial Taranaki land is to be absorbed by a big box retail centre.
The 7.44-hectare former Ravensdown industrial site on the outskirts of New Plymouth was purchased by Bluehaven Group for a multi-million dollar big box shopping centre, to potentially include a supermarket, cinema, offices, food and beverage premises and a hotel.
Taylor says although the industrial sector was least affected by pandemic forces due to the largely-essential services classification it benefited from, the Bayleys’ industrial leasing team is seeing some changes in lease structures.
“COVID clauses are being inserted into agreements, first rights-of-refusal clauses are becoming more common as tenants aspire to ownership, and landlords are seeking longer leases.”
Strong in the South
The Nelson-Tasman region’s economic fundamentals are underscored by a resilient primary sector including fishing, forestry and horticulture, and an impressive and burgeoning knowledge and innovation economy epitomised by the Cawthron Institute – New Zealand’s largest independent world-class science organisation.
Bayleys Nelson’s director commercial and industrial, Paul Vining, says the region is not immune to the nationwide shortage of industrial space and big city scenarios are inching their way to the top of the south.
“The development pipeline of new industrial stock will go some way to releasing the pressure valve – but it’s clear that the demand for high-quality industrial space with scale is escalating, alongside the booming owner-occupier market for smaller, functional and well-located industrial units.”
Vining says although Nelson-Tasman does not have the requirement for large-scale distribution hubs for e-commerce order fulfilment given this is largely driven out of Christchurch, the regions’ heavyweights in other sectors are looking at expansion and ways to future-proof operations.
Nelson Airport is diversifying its revenue streams by taking on commercial and industrial tenants to supplement aviation activity, and Port Nelson and Cawthron Institute are looking to partner on the development of a Science and Technology innovation precinct on port-owned land bordering State Highway 6 in Nelson.
Port Nelson is thriving, largely due to the performance of its fourth-party logistics and supply chain solutions provider, QuayConnect, and cargo volumes and container throughput remain strong.
At the western end of Lower Queen Street in Richmond, prominent local development firm Gibbons is behind the LQS Industrial Park. Designed for large industrial users, it offers easy access to State Highway 6 allowing tenants to quickly connect with Nelson Airport, Port Nelson, the Nelson CBD and Motueka.
The industrial park includes occupiers in the warehousing, logistics, food processing, and timber sectors with Carter Holt Harvey and Downer in-situ.
“Stage one has just five sites left for design-build/lease ranging in size from 1,830 square metres to 4,520 square metres and a further 12.5ha of land will be developed in stage 2,” says Vining.
“Another Lower Queen Street offering, by seasoned local developer Collett Group, is The Cube freehold unit-titled complex comprising 100 new business units, which is selling down quickly,” he says.
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