Workplace Industrial Research Article

Tenants will feel squeeze on rents this year

Workplace Industrial Research Article

Pragmatic tenants across New Zealand understand their market conditions and are preparing for rent rises, according to the latest Bayleys Research commercial and industrial sentiment survey.

Canvassing the thoughts of the market with more than 5,700 responses from people in the commercial and industrial sector, almost half of the respondents nationally expected rents to rise over the year.

Ian Little, Bayleys research manager says: “New Zealand’s economy has been riding the wave of success over the last few years, often outpacing the growth rates of counterparts across the OECD.

“Company tax takes have been higher than expected meaning businesses are seeing and experiencing positive trading conditions.

“While this has been great for New Zealand businesses, it has meant that there has been a significant amount of industry expansion, and in some instances, the development market has not been able to maintain pace.

“A significant amount of our development capacity has been focussed on supporting the undersupplied residential sector, with capacity constraints within some of our hardest hit areas seriously restricting the ability of the development sector to keep pace with demand.

Bayleys latest vacancy surveys across New Zealand show there have been many instances of demand being greater than supply in the commercial and industrial sector, leading to historically low vacancy rates.

Vacancy rates within the office and industrial sectors in both Auckland and Wellington have reached multi year lows, with a shortage of space for occupiers continuing to apply upward pressure on rents.

It’s not, though, just the main centres that are feeling the pinch, says Little.

“Survey respondents expect the regions to experience higher levels of commercial and industrial rental growth than the main centres.

“Although just over half of the survey respondents expect rents to rise nationally in the next year, the majority of this is driven from Queenstown, Tauranga and Hamilton,” says Little.

Almost four out of five survey respondents expect Queen¬stown rents to increase over the next 12 months in the com¬mercial and industrial sectors the survey report shows.

Little notes: “Queenstown tenants have been feeling the effects of regional growth for some time. Tenants will need to be prepared for this when it comes to financial planning and rent review or renegotiation dates.

“Tauranga’s commercial and industrial sectors are a standout in the survey responses – especially in retail which saw a whopping 15 percentage point increase from the 4Q2017 survey, with expectations for rental growth now sitting at 60%.

“Hamilton, which was ranked third in respondents’ expectations for rent rises across the country, showcases how the main centres within the upper North Island’s golden triangle, Auckland, Waikato and the Bay of Plenty, is in a positive period of expansion,” he says.

Analysing the types of property that are predicted to experience the highest increases in rent over the next year, there has been one ‘mover and shaker’.

“Expectations of rental increases in Wellington’s office mar¬ket have risen strongly since the last survey, with almost two-thirds of all respondents expecting higher rents next year,” says Little.

Despite this, the industrial sector remains the sector with the strongest expectation of rent rises nationally, albeit rents are at a lower base than other sectors.

Little says: “outside of Wellington, there was no exception from our respondents who all picked the industrial sector as the one to watch when it comes to rental growth over the next year.

“When we pressed our respondents further on the level of the expectations of industrial rents rising at more than 5% per annum over the next year, almost one-third of respondents expected this to occur in Queenstown.

“Tauranga at 25% of respondents expecting industrial rent rises of more than 5% followed close behind, with Hamilton at 17% of respondents and Auckland a tad lower with 14% of respondents.

“Although the number of respondents expecting rent rises of more than 5% over the next year has dipped, compared with the December survey, only 10% of respondents nationally expect rents to fall.

“These figures give a strong indication that market conditions will continue to favour landlords over the year ahead,” says Little.

Workplace Industrial Research Article

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