The Bay of Plenty
Total Property - Issue 4 2019
Demand for commercial and industrial space is growing in Tauranga as the local economy booms due to a fast-growing population, thriving agriculture and record activity through the Port of Tauranga. A flourishing construction sector is delivering a raft of new property as development ramps up.
Conditions are particularly tight in the industrial sector, where vacancies have hit historical lows and upward pressure on rents is intensifying.
The city is also seeing considerable investment demand. Since 2012, annual investment sales have averaged around $210 million.
Yields for quality space remain tight across all major sectors. Industrial property has seen yields tighten by 50 to 100 basis points in the past year for prime and secondary assets. Prime industrial yields now range between 4.5 and 5.5 percent.
INDUSTRIAL – IN THE SWEET SPOT
All major industrial areas continue to see tight conditions. The overall vacancy rate was 2.4 percent in the third quarter of 2018, down from 4.4 percent a year earlier. Greerton recorded the lowest vacancy at 1 percent.
Vacancies rose marginally in Tauriko, due to completion of speculative developments at survey time including multiple, smaller strata units, most of which have since been sold or leased.
Mount Maunganui, linked to the port, continues to perform exceptionally well. The port expects to move a record 1.2 million containers in the year to June 2019, supported by flourishing horticulture and forestry exports.
Tight vacancies in Papamoa reflect constraints due to encroaching residential development. Rapidly falling vacancy in Judea – home to largely older, secondary-grade property – reflects how tight conditions have become across the city.
These conditions have driven across-the-board rises in industrial rents and further yield compression. Industrial land values have grown significantly, particularly in the Mount where prime industrial land sells for up to $1,100/sqm.
OFFICE AMID CBD RENAISSANCE
Multiple developments are beginning to deliver a more vibrant CBD. Many larger office occupiers are housed in modern space along Cameron Road, and more smaller occupiers are likely to venture back into the centre.
Projects are led by the $130 million redevelopment of the Farmers building on the corner of Devonport Road and Elizabeth Street. Another $50 million, 14,000 square metre tower is planned for Devonport Road, combining office, retail and residential space.
Other office, co-working and mixed-use development, along with apartments, are on the way amid major civic and amenity improvements – including a new central library, civic administration building and a hotel and conference centre.
A $39 million-plus University of Waikato campus is expected to bring 1,800 students into the CBD, lifting demand for accommodation.
Together, this renaissance will add to the CBD’s attractiveness as an office location.
New office builds in recent years have added to the stock of prime space, seeing rents generally tracking sideways while space was absorbed – a pattern Bayleys Research expects to continue over the next year.
Though there is solid investment demand, opportunities to buy well-let, modern office premises remain limited.
RETAIL – WAVE OF DEVELOPMENT
Retail development is sweeping the region as population and business growth boosts consumer spending. Paymark figures for the final quarter of 2018 show card spending grew in sectors including food and liquor (up 7% year-on-year), home improvements (up 5%) and restaurants and cafes (up 7%).
The CBD retail scene is undergoing a make-over, led by the Farmers redevelopment to house 8,000 square metres of retail, 23 townhouses, 96 apartments and 322 parking spaces, with completion due in 2021/2022.
Plans to turn Wharf Street into a pedestrian-friendly ‘eat street’ also look to be gathering momentum.
The CBD will re-emerge with more focus on hospitality and specialty stores to support the growth of apartment dwellers, students and workers.
Mount Maunganui is becoming more of a boutique retail destination. Vacancies are virtually non-existent and rents are rising. Growth is supported by cruise ship visits, with 125 expected over the 2019/2020 season, up from 83 two years earlier.
Retail centre developments include Tauranga Crossing, which will have 70,000 square metres of retail on completion, housing brands including PAK’nSAVE, The Warehouse, H&M and Event Cinemas.
A $155 million expansion of Bayfair Shopping Centre will increase its footprint by 9,000 square metres, to 42,000 square metres. It will have 150 stores, a cinema complex and alfresco dining.
Papamoa Plaza is more than doubling its floorspace to 20,000 square metres, adding 15 stores to total 55.
Suburban shopping centre rents have been rising as new developments set new benchmark levels.
Strong demand for limited retail investment property has kept yields firm.
The full Bayleys Research report is available here.
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