The COVID-19 shudder

The COVID-19 shudder

Industrial Workplace – August 2020

The COVID-19 shudder

Scott Campbell, national director industrial & logistics, said the industrial leasing sector is weathering the COVID-19 storm far better than others.

“Generally, businesses operating in the industrial sector have fared better than their retail, office, hospitality and tourist-reliant counterparts and as a sector, industrial is looking to be in better shape than most people could have predicted back in March.

“Businesses in the logistics, storage, food production, packaging and similar fields for example, have not been hit as hard as others throughout the pandemic-induced environment,” he explained.

“However, the wage subsidy scheme and other fiscal stimulus packages initiated by the Government may be cushioning the impact of COVID-19 and there could be some softening later in 2020 when this support ends.

“Tenants may be more cautious about lease commitments and the amount of space they sign up for – but vacancy rates and rents in the industrial space are holding stable in most parts of the country for now.”

An increase in online and e-commerce activity has contributed to the robustness of the industrial market.

NZ Post’s special edition e-commerce Spotlight COVID-19 report showed that for the six months to 30 June 2020, online shopping activity was 30 percent higher compared to the same time in 2019 and 11.6 percent of all retail spending was online.

Work force

New Zealand’s unemployment rate is forecast to rise over the next quarter as the Government’s fiscal subsidy programmes come to an end. Westpac NZ has predicted this to rise above 7 percent in the coming months.

As at June 2020, our seasonally adjusted unemployment rate fell from 4.2 percent in March to 4 percent for the June quarter, according to the Household Labour Force Survey released by Stats NZ in August.

Four percent equates to around 111,000 people however, this figure cannot be relied upon wholly due to measurement discrepancies clouding the true picture of the labour market.

New developments

Nationally, the cyclical peak for new building consents was achieved in the year to May 2019 with 1,071 consents issued, at a total value of more than $1.48 billion – more than double the total building consents issued in 2012 which had a total value of $550 million.

There was a slight drop off in the year ending May 2020 with 929 consents, with a total value of $1.3 billion.

Campbell said there may be a drop off in speculative development activity in the short term as developers reassess the demand for new industrial property in the market given the current economic climate.

Auckland update

Rental growth in the Auckland industrial market has continued at around 3-5 percent over a sustained period, with sub-1.5 percent vacancy across both prime and secondary stock.

Speculative development by larger entities, has resulted in more than 350,000sqm of space being completed and available for occupation over the last 12 months. New development may slow in the second half of 2020, but should pick up early 2021 to a normalised rate of growth.

Low vacancy rates will remain for 2020/21 with rental growth slowing down by 50 to 100 bps.

Campbell said Auckland rentals over the past decade have climbed, largely due to logistics sector expansion with prime quality warehouse stock over the last year reaching upwards of $130-$140 per square metre.

Christchurch update

Christchurch is New Zealand’s second biggest city by population size and is the South Island’s manufacturing and regional GDP powerhouse – making development crucial.

The number of building consents issued declined over the last year with only 130 industrial consents being lodged – a 20 percent drop on the previous year.

Christchurch City Council has submitted nearly $800 million in shovel-ready infrastructure projects to help the Christchurch economy post COVID-19 ranging from roading projects to an upgrade to Lyttleton Port.

Campbell said the Christchurch leasing market looks to be on the upward trajectory.

“Vacancy is getting scarce for properties larger than 500sqm and demand is increasing as more occupiers look at their new operating structure in the post-lockdown era.”

“Looking ahead to the rest of 2020, companies that need to move will be in the market for a better deal but otherwise, occupiers are likely to be very cautious about their next moves.”

Wellington update

The Wellington industrial market looks to be withstanding the impact of COVID-19, with vacancy rates remaining stable at pre-COVID levels.

Rents are holding stable at $130-$140 per square metre for prime stock, and secondary rents at $80-$90 per square metre.

Campbell said Wellington’s more challenging topography has meant a lack of available developable land for new industrial developments, creating upwards pressure on existing stock.

“The outlook for Wellington’s industrial market is very strong although there may be reduced activity as the market becomes more cautious in the second half of the year.”

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