Large-scale needs outstrip supply

NZ Herald

5 Mar, 2013 04:30 PM4 mins to read

More land is available for development in Manukau. Photo / Supplied

More industrial land is ripe for development in Auckland but not the right type required by larger businesses.

More industrial land is available for development in the Auckland area than a year ago but the vacant land is unlikely to satisfy industrial demands, says a national industrial land supply survey undertaken by Colliers International Research.

"In greater Auckland, around 794ha of developable industrially zoned land is now available," says Alan McMahon, national director of research and consulting at Colliers International. "This is up on last year's result primarily due to the increased availability of land in Manukau and Waitakere."

However, results in central and northern areas of Auckland highlight that only 10 per cent of the total available land supply is within the former Auckland City boundary. Only 21ha is available on the North Shore. "While more industrial land is available in South Auckland, it may not be what is needed to satisfy the high demand for industrial land," says McMahon.

"At first glance the overall results could be interpreted as an increase that will alleviate supply constraints in core industrial areas in South Auckland. However, the supply is not necessarily suitable for the type of development which the market is demanding.

"The majority of the land available is in small sites incapable of housing the substantial facilities required by larger businesses. Furthermore, large tracts of this land are held by companies such as Auckland Airport which is unlikely to release any land to the private sector for development," he says.

The survey of six major locations across New Zealand also shows that land values are rising in some areas but not in others. "The rise in industrial land supply is primarily concentrated in the Auckland and Canterbury regions with most markets providing a similar supply survey result this year," McMahon says. "This is due to demand in some locations being mismatched against the level of supply."

He says there are about 2440ha of developable industrial land in Auckland, Hamilton, Tauranga/Mount Maunganui, Wellington, Canterbury and Dunedin, which is up by 8.5 per cent compared with a year ago.

Reflecting the growth in appetite for developable land, the latest survey also highlights the increase in land values which has occurred since Colliers International's surveys began in 1995. Between 1995 and 2012, land value growth has averaged 15 per cent a year in the Auckland region, rising from $94/sq m in March 1995 to $344/sq m today. In South Auckland, values have increased by an average of 18 per cent a year.

However, it has not always been a "straight line growth" story, McMahon says. "The 21 per cent decline in industrial land values since the peak in early 2008 has impacted growth rates, which were much higher between 1995 and 2007, with 28 per cent a year recorded in the Auckland region.

"While land value growth has been flat lately, we predict 5 per cent rental and capital value growth this year in Auckland which will translate to land value growth of a similar order," he says.

"In the next few years after that we expect land value growth in good locations to increase robustly based on strengthening occupier demand. However, we do not expect a return to the previous trend of over 20 per cent a year, as this was largely driven by tightening cap rates which are unlikely to continue sharpening at the same pace in the long term."

The Canterbury region also showed an increase in industrial land supply. Colliers International Research estimates that about 811ha of industrially zoned vacant land capable of development exists in Canterbury. This excludes over 200ha of land at Christchurch International Airport zoned special purpose, which may have an industrial component.