BUSINESS EXPANSION DRIVE PICK UP IN LEASING ACTIVITY
Increased leasing activity on the back of an improving economy is pushing down industrial vacancy rates across the Wellington region. Rentals are also beginning to rise for the first time in a number of years for modern, higher grade industrial premises as Ian Little, Bayleys Research’s national manager reports.
Wellington’s economic performance has been subdued in recent years, with annual GDP growth in the region averaging 1.8% between 2009 and 2014 according to the New Zealand Institute of Economic Research. However, NZIER is forecasting this to accelerate to an average of 3.1% pa over the next five years.
Recent data is beginning to reflect an improving economy according to Grow Wellington, which noted an increase in business activity and growth in numbers of businesses operating in Wellington in its 2013/14 annual report. Stronger business confidence and profitability and a growing number of companies signalling their intention to increase investment and take on more staff were also highlighted in the report.
Demand for labour continues to increase and employment numbers within the region have recovered to close to their pre GFC peak. Skill shortages have become particularly acute in information and communication technology as that sector continues to expand. The region is also experiencing considerable growth in construction activity and employment, largely generated by a significant road investment programme, led by the 100 kilometre Northern Corridor from Wellington Airport to Levin, and continuing seismic strengthening of buildings. The region’s screen sector has benefited from The Hobbit productions with further projects such as the upcoming Avatar films in the pipeline.
The improved economic environment is driving business expansion which at this stage is most clearly being reflected in a significant fall in the industrial property vacancy rate. Bayleys Research’s latest survey of the Wellington region’s primary industrial precincts shows an overall vacancy of 6.4%, compared with 7.4% a year earlier. This is the second year in a row that the vacancy rate has fallen, following six years of increases from 2006. The slow and sluggish post GFC recovery had little impact on vacancy rates which had spiked during the recession as many companies had considerable spare capacity to absorb. Only recently has there been a return to expansion.
SEAVIEW LEADS STRENGTHENING MARKET
Seaview, the region’s largest industrial precinct, has led the downward trend in empty space, with its vacancy rate falling for the second successive year from 7.2% to just over 5.5%, its lowest level since 2009 when it was under 5%.
A return of business growth is apparent with landlords reporting that some companies, which had been trimming occupied space in recent years, are now seeking opportunities to expand once again. As business confidence has improved, landlords have also found tenants willing to commit to longer lease terms.
Higher quality space is now in short supply, particularly for warehousing up to 1,000m² which is also popular with owner occupiers. As with other precincts, vacancy is mostly concentrated within older style buildings. However, over the last two years, landlords have been successful at backfilling more of this space, albeit at relatively low rental rates.
After being flat for a number of years, rental rates for better quality, high stud warehouse space are beginning to rise as the falling vacancy reduces the options available to tenants.
PETONE'S CHANGING FACE
It’s been a case of “steady as she goes” within neighbouring Petone, with the vacancy rate easing slightly to 6.9% from 7.1%. The vast majority of empty space is located within the precinct’s fringe locations to the west of Hutt Road and on Waione Road.
Within the core area of the precinct, roughly bounded by Nevis Street and Hutt Road to the west, Udy Street to the north, Nelson Street to the east and The Esplanade to the south, the market is particularly tight. Premises in this area are dominated by smaller workshops and warehouses, popular with small engineering and service companies. Premises which do fall vacant tend not to remain so for long due to active competition between tenants and owner occupiers.
Large scale manufacturing has been in decline for a number of years in the Petone area. This trend will continue when Unilever ceases operations from its 5.5ha Jackson Street site later this year leaving Imperial Tobacco as the precinct’s last large scale manufacturer.
At the western end of Petone, a change to the character of occupiers is occurring following the implementation of Plan Change 29 which became operative in September last year. This allows a greater range of activities in this part of Petone including large bulk retail and residential development.
As a result West Petone looks set to become a bulk retail hub. Briscoes is developing two stores for Briscoes and Rebel Sports on the ex Colgate industrial site on Nevis Street which the company has purchased. On the other side of Nevis Street, industrial space at the Te Puni Mail Centre will be redeveloped into an 11,000m² Bunnings hardware store when NZ Post vacates the site in August this year. In nearby Hutt Road, an existing building on a 1.7ha site will be reconfigured and added to for a 5,200m² K Mart store, the first in Lower Hutt.
LOWEST AMOUNT OF EMPTY SPACE IN GRENADA
The Grenada precinct now boasts the lowest vacancy rate amongst the Wellington region’s major industrial precincts. An active letting market and strong competition from owner occupiers has resulted in the vacancy rate falling from 6.6% to 4.5%.
Agency reports suggest that there has been a further uptake of space since Bayleys Research’s latest survey with a vacant building at 20 Cashew Street selling to an owner occupier and further leases imminent in Jamaica Drive. Assuming no new vacancies, this latest market activity could push vacancies in the precinct to below 3% this year, the lowest figure recorded since 2008.
VACANCIES NUDGE LOWER IN NGAURANGA
Being one of the smaller precincts, vacancy within Ngauranga has been volatile as a relatively small number of buildings falling vacant or being leased can have a significant impact. During 2009 and 2010, the precinct had the region’s highest vacancy level as the specialist nature of many of the buildings, including high office components, meant reletting premises which fell vacant proved particularly difficult.
In more recent times, the precinct has experienced a fairly stable market with no major loss of tenants and vacancy has trended down, now sitting at 5.8%. Since the Bayleys Research survey was undertaken, it has been confirmed that vacancies at the former Mastertrade and ex Pronto Print buildings have been filled, pushing the precinct’s vacancy to closer to 4%.
RETAILERS MOVE INTO RONGOTAI
Miramar and Rongotai was the only precinct surveyed to record an increase in industrial vacancy in the Bayleys Research survey, with the figure rising from 8.8% to 10.5%. However, this precinct has changed in character over recent years, particularly in Rongotai where retailers have replaced industrial users on many sites.
Much of the empty space is within functionally redundant buildings on Tirangi Road and Kingsford Smith Street which are unlikely to attract long-term tenants in their current condition. The most likely outcome is that the sites they occupy will be redeveloped for retail use. This would fit with the recent development of the Bunnings store on Kingsford Smith Street and the proposed expansion of the Airport Retail Park on Tirangi Road.