Industrial strength

Why industrial property is going from strength to strength

Total Property - Issue 7 2017

New Zealand's industrial property market is surging ahead, with demand outpacing supply in key centres.

Developers have ramped up activity across the country, but that additional space is being quickly absorbed.

There are pockets of opportunity, though. Additional tracts of land have been re-zoned for industrial use and released, especially in growth areas, and may provide some relief.

However, this has yet to make a significant impact on vacancy rates.

In Auckland alone, results from vacancy surveys conducted by Bayleys Research show there was just 167,350m2 of industrial space available from a total of 4.8 million m2 surveyed.

The results of recent Bayleys surveys show the state of play for industrial centres in the rest of the country:

• HAMILTON - Market conditions remain extremely tight in Hamilton’s major industrial areas, with overall vacancy at an ultra-low 2.8 percent.

• TAURANGA - Conditions remain tight across all the major industrial areas in Tauranga, with the overall vacancy rate dropping to a low of 4.4 percent – down from 5.2 percent a year earlier.

• WELLINGTON – The capital’s strong economic performance - driven by expenditure on major infrastructure projects, and booming IT, communications, manufacturing and film sectors - is reflected in the fall in vacancy rates across the region’s prime industrial precincts. Vacancy now stands at 4.5 percent, its lowest level since 2008, when the rate sat at just over three percent.

• CHRISTCHURCH - The rebuild and Canterbury’s position as the South Island’s distribution hub have driven strong demand for industrial space. Developers have responded to this, adding an average of nearly 250,000m2 of industrial floorspace to the regional inventory annually since 2012.

Industrial property is a highly sought after investment asset – where 56 percent of annual commercial property sale transactions in 2016 in the country’s largest market – Auckland – were in the industrial sector.

Considering that 85 percent of all commercial property transactions in New Zealand sell for $2 million or less, industrial property - typically of a lower dollar value than the commercial office and retail sectors – provides a large pool of opportunities, although bidding is competitive.

Indications are that the tight market will continue over the short-term, which means tenants may be frustrated with the lack of choice. And rental costs will likely increase as a result.

The rise of online shopping, and Amazon's arrival in Australia and possible expansion into New Zealand, represent a growing business opportunity for the logistics industry in New Zealand.

Cities that promote themselves as freight-forwarding centres could corner a significant chunk of the business.

However, there are challenges facing the sector. Construction of new stock needs to happen on a larger scale.

Infrastructure is another issue. The sector’s performance is closely aligned to the quality of the surrounding transport network.

More central and local government spending is essential. In the interim, businesses will need to align their future accommodation, distribution and staff and recruitment strategies carefully.

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