With a substantial amount of capital circling and looking for a home in New Zealand’s investment market, the industrial property sector continues to be the most preferred asset class post-COVID-19.
While the risk profile of other asset classes has weakened given market and economic uncertainty, the Auckland industrial sector, in particular, is witnessing feverish activity as investors compete for a limited inventory of assets, according to the market-leading Bayleys South Auckland Industrial team.
Among those battling to secure industrial property are fresh investors to the sector, on the back of diminishing returns from other asset classes and higher compliance thresholds in the residential investment market.
In some areas of Auckland, constraints on industrial land are becoming increasingly evident with the tight fundamentals unparalleled anywhere else in the country.
Scott Campbell, Bayleys national director of industrial and Sunil Bhana, Auckland director of industrial, said Bayleys recently merged its central and south Auckland Industrial teams, converging under one roof at East Tamaki and further strengthening the agency’s depth in the market.
This combined experience and expanded client network has seen the agency make a huge start to 2021, with momentum building exponentially from where it left off in 2020.
Traditionally, the first two months of the year can be quieter with seasonal holidays and short weeks, however in the first two months of this year, Bayleys closed deals on more than $400 million of industrial property, almost doubling the usual transaction value for the start of any year.
Campbell said the record yields for prime industrial property achieved in 2020 look set to continue this year and said we could be talking about sub-3.75 percent figures in the near future.
“Sub-4 percent yields are now becoming common in the Auckland industrial market driven by the limited supply of industrial property which is fuelling a feeding frenzy from investors when a strongly-tenanted, well-located offering hits the market.
“A large-scale property at 17 Ha Crescent, Wiri, underpinned by a long-term lease to leading distributor of wheels and tyres YHI NZ Limited, sold for $18,510,990 at a 3.1 percent yield on passing rental, with market review within six months increasing to 3.85 percent – a benchmark that we expect to see rivalled soon.”
Campbell said a shortage of land for future industrial development Auckland-wide is adding to the pressure on existing stock in a sector which seems to have bottomless demand.
“The west Auckland area is incredibly constrained and there is a finite amount of prospective land for industrial development down the track,” he said.
“Any existing stock in that area is seeing intense interest when it comes to the market forcing many investors and owner-occupiers to broaden their search parameters.”
The popular Tidal Road industrial subdivision in Mangere, close to the airport, that will be home to major logistics companies including Sorted Logistics, SCS Supply Chain, Cardinal Logistics and Hancocks, was one of the fastest uptakes of industrial land seen in the Auckland region, and demonstrates the heat in the market.
Sunil Bhana said it’s just one example of how the Bayleys’ team leveraged the combined power of its network to facilitate an impressive result.
“Bayleys transacted more than 60 percent of the Tidal Road development’s land sell down, followed by more than $120 million in investment sales of completed industrial product in recent weeks.
“Other recent standout sales include 48 Wilkinson Road in Ellerslie, where Industre Property paid $54 million for the land and buildings leased to NZME for their printing and distribution operations.
“The Bayleys South Auckland team also brokered the sale of Cavalier Bremworth’s main manufacturing facility within Papatoetoe’s industrial precinct for $25.5 million.”
Just how 2021 will continue to play out in the industrial sector is yet to be seen, but Campbell is expecting more of the same robust activity and results.
“I think we’ll see some further recycling of assets as landlords clear debt, and once New Zealand’s borders reopen and investors or their representatives are able to view bricks and mortar, I would expect to see an influx of off-shore money heading this way.
“I believe we will also continue to see new entrants to the industrial investment space given the well-performing fundamentals of the sector.
“And there will be steady interest in emerging industrial precincts such as that in Drury, for example, where solid activity has seen bare land sites selling for up to $500/+ per sqm – something I never thought we’d see.”
Bhana expects the well-trodden e-commerce narrative to keep putting pressure on warehousing and logistics-related property stock, and thinks there will also be a rise in activity in the industrial syndication market as investors seek to gain a piece of the prime industrial pie for an accessible minimum investment.
“The interest shown in the just-launched Augusta industrial syndication opportunity – the Visy Glass property in Penrose – proves there’s a healthy appetite in this sector.”
Campbell said the industrial investment and “land grab” story evident in the Auckland market, is being echoed around the country with other Bayleys offices reporting unprecedented levels of activity.
“The interconnectivity of the wider Bayleys network across 94 offices allows us to tap into larger occupier and investor databases, enabling us to work smarter and add more value to our clients’ property asset transactions,” he said.
Testament to its strong client relationships and the company’s innovation and marketing excellence, Bayleys South Auckland Industrial took out the RICS agency Team of The Year award in 2020 for the second time in three years, along with the REINZ’s multimedia marketing award across all asset classes for the marketing of the Woollen Mills Industrial development in Onehunga.