Industrial property sales activity remains at a high level at a time when vacancy rates in Auckland are at an all-time low.
Bayleys Research’s latest annual Auckland industrial accommodation survey shows the average vacancy rate across Auckland’s largest industrial precincts has plunged to a new low in early 2019 of just 1.7%. This is almost half the already historically low rate of 3.3% recorded in early 2018, says Bayleys Research manager Ian Little.
The lowest vacancy level of just 0.9 per cent was recorded at the Auckland airport precinct where Bayleys South Auckland industrial team has recently concluded three hefty sales totalling $37 million.
The highest price achieved was $17,386,960 for a 1.7ha site at 9 Richard Pearse Drive, Airport Oaks sold by Scott Campbell, Nick Bayley and Ash Hira at a 5.1 per cent yield on a new 10-year lease to ASX listed Apollo Motorhome. Campbell and Bayley also negotiated the lease.
The property has 5420 sq m of warehouse and office space but Campbell says a significant attraction for tenant and the purchaser of the property was the significant amount of undeveloped land on the site.
Around 5000 sq m of grass was converted to a hard stand area for vehicle display prior to Apollo Motor Homes’ occupation. The company is using the property for the renting and sale of vehicles.
A 4610 sq m coolstore and office premises located on a 1.0491ha site at 12-16 Brigade Rd, Airport Oaks (pictured above) which accommodates My Food Bag’s distribution centre, has been sold for $13.2 million at a 6.08% yield by Scott Campbell, Jamsheed Sidhwa, James Hill and Nelson Raines.
The home delivery meal kit provider moved into the property 18 months ago following a major refurbishment and refit which incorporated the latest generation of ‘carbon tax neutral’ refrigeration plant and equipment. The company has a nine-year lease through until 2026 with three three-year rights of renewal.
Campbell says the “virtually non-existent” availability of substantial, high quality perishable food handling premises in Auckland coupled with the sought after location close to the airport resulted in very strong interest in the offering. There were over 30 inspections of the property and multiple offers received.
Sidhwa says the property’s appeal was also enchanced by fixed annual rental increases of 2.5% each year from October 2020. “The lease also places responsibility on the tenant for all maintenance, repair and replacement of the fit out and equipment, including the refrigeration plant, and to ensure that it is compliant with food grade standards, making it the ideal bottom drawer investment.”
The other sale, concluded by Nick Bayley and Nelson Raines, was at 54 Tidal Rd, Mangere which sold for $6.78 million at a 5.90 per cent yield. It comprises 3,600 sq m of warehousing and office space on a 7,315 sq m freehold site.
Nick Bayley says the property, developed in 1980s, has undergone substantial improvements in recent years and has a seismic assessment of 100 per cent of New Building Standard. “A good spread of split-income risk across six tenancies made it an attractive investment proposition,” he says.
Scott Campbell, Bayleys’ national industrial and logistics director, says in addition to the record shortage of vacant industrial accommodation, vacant development land in established industrial precincts is also in increasingly short supply.
“Even at Highbrook Business Park in East Tamaki, New Zealand’s largest industrial development site, it is likely that it will reach full capacity by 2021. The shortage of land options has put a lot of upward pressure on values.”
An example of this is the recent sale of a 5104sqm industrial land holding at 9-11 Nandina Avenue, East Tamaki which has been sold for $4,185,280 at $821 per sq m by Roy Ruldoph, of Bayleys’ South Auckland team.
Bayleys previously sold the flat site, in two equal titles and with 74m of road frontage, in late 2016 for $2.86 million at $560 per sq m. Rudolph says it been purchased by an owner occupier intending to develop the property although in the short term it will continue to be occupied by a car sales business, providing holding income of $145,000 pa.
“Being a long established industrial precinct, land available for development in East Tamaki has become an extremely rare commodity. This has resulted in land values which sat around $350 to $450 per sq m in 2014, now being valued at between $600 and $900 per sq m.”
Campbell says while most commercial property sectors have performed well over the past few years, the industrial sector has provided the highest returns over an extended period of time.
According to statistics released by MSCI which revalues a multi- billion dollar portfolio of New Zealand commercial and industrial property on a quarterly basis, industrial property nationally returned 13.2% in the year to September 2018. This continues a run of double digit returns which began in March of 2012. The latest figures include a capital return of just over 6.5% reflecting ongoing yield compression and rental increases.
Further analysis conducted by MSCI shows property located within Manukau and the airport corridor to have outperformed the wider market generating total returns of 15.6 per cent in 2018 including a capital return of 9 per cent.