High demand, low vacancy

High demand, low vacancy

Total Property - Issue 5 2018

The industrial sector continues on a golden run around New Zealand, with regional sales volumes and values starting to gain ground on the back of strong markets in Auckland and Wellington.

Bayleys Research manager Ian Little, says industrial property has consistently outpaced the other major sectors on most benchmarks.

“There would appear to still be some mileage in this sector too, with the majority of respondents to the first quarter 2018 Bayleys Research sentiment survey expecting the industrial sector to show further value growth over the next 12 months.”

Data from the MSCI Property Index show that returns from prime industrial property have out-performed other sectors over the last 15 years. In the year to March 31, industrial recorded a 12.8 percent return compared to 7.7 percent and 12 percent for retail and office property respectively.

“This upward trajectory is underpinning significant industrial property investment activity in the market, with a new Augusta Funds Management Ltd property fund established to invest solely in industrial property, and NZX-listed Goodman Property Trust announcing that its $2.2 billion portfolio will be 99 percent invested in Auckland industrial property.”

Little says intense demand in the industrial sector is outpacing new development, and as a result, vacancy rates have continued to decline, while rents have faced further upward pressure.

“Investors are struggling to find prime assets in prominent locations with long weighted-average lease terms and strong covenants, so they’re increasingly looking for well-located properties with short-lease or vacant profile where they can add value.”

Meanwhile, vacancy has fallen for a fifth straight year across Wellington’s primary industrial precincts according to results of Bayleys’ latest vacancy survey.

The overall vacancy rate across Seaview, Petone, Grenada, Miramar, Rongotai and Ngauranga now sits at just 2.61 percent, down from 4.45 percent as at the 2016 survey.

“A further sharp tightening of Wellington’s industrial property vacancies is expected to drive a new wave of supply over coming years on the back of a strongly-performing regional economy,” says Little.

“Much of this supply will emerge in new precincts linked to the $2 billion-plus roading infrastructure projects currently underway, or through redevelopment of older stock located within established precincts like Seaview.

“All of the precincts that we track are showing strong demand, scarce availability and a forecast for yields to remain steady.”

As Canterbury continues to cement its position as the South Island’s chief distribution hub, the industrial property sector looks set to remain robust and in demand.

Little says the continued high levels of activity within the Selwyn district’s industrial development sector follows the sell down of vacant industrial land at locations such as the Izone and IPort business parks in Rolleston over recent years.

“The vast majority of industrial development in these growth precincts occurs on a design-build basis as opposed to via speculative development, meaning that occurrences of oversupply are less common than in the office sector, for example,” he says.

Key infrastructural work underway in Canterbury is further underpinning industrial property activity, with NZTA’s Southern Motorway Stage 2 project under construction and expected to cut travel time from the CBD to Rolleston from the current 30 minutes, to 15 minutes.

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