Net absorption of industrial space over the past 12 months is the highest in eight years, the latest survey by Colliers International Research shows.
The updated Auckland industrial survey covering 10.6 million square metres of floor area shows that the industrial vacancy rate dropped to 4 per cent in February 2013 from 5.1 per cent recorded six months earlier, says Chris Dibble, Colliers' Auckland research manager.
"The overall result is a five-year low in industrial property vacancy and places the vacancy rate just shy of the lowest rate recorded in the last decade. The outlook for the industrial sector is bright with further expansion and tightening expected," Dibble says.
According to the survey, nine of the 11 industrial precincts surveyed recorded a decrease in vacant space. "Both the prime and secondary sectors are winning in the battle to attract and retain tenants in a highly competitive market," says Dibble.
The focus on South Auckland, and in particular Manukau, which is now designated as a metropolitan centre by Auckland Council, highlights the role of the area in Auckland's future.
"We've seen extraordinary growth and expansion of the industrial property sector which Colliers International started surveying in the early 1990s. South Auckland remains a highly desirable location for tenants with net absorption of around 60,000sq m in the past six months.
"It also remains a hot spot among investors, with initial yields for prime premises deemed to be as low as 7.54 per cent, according to our latest research."
North Shore vacancy results matched the demand in the south. The North Shore industrial property vacancy rate is the lowest since early 2004 and the second lowest ever recorded by Colliers International, now sitting at 2.5 per cent.
Recently refurbished industrial space assisted with a rise in total stock availability but it would seem more is needed, Dibble says. Absorption of 16,000sq m leaves only 40,000sq m of vacant space which was at 120,000sq m only three years ago.
"Not to be left out from the rise in tenant demand in the north and the south, Waitakere's industrial vacancy rate, which encompasses the New Lynn and Henderson precincts, reduced to 6.5 per cent from 9.1 per cent recorded in mid-2012. This arrests the increase in vacant space that arose in the first half of 2012 in New Lynn," says Dibble.
The latest performance of manufacturing index (PMI) aligns with Colliers International's results.
It shows an industrial sector in expansion mode, with 56.3 in February 2013. (Above 50 is expansion). This is the highest result since early 2012 and singles out New Zealand in comparison with the Global PMI index which last month was at 51.2.
While New Zealand is likely to experience a slowdown in expansion due to the drought, production and new orders were the stand-out components of the index in February which augurs well for future conditions in the industrial sector.
Dibble says the industrial sector is sitting in a comfortable position thanks to its low volatility as a sector before, during and after the global financial crisis.
Rentals decreased the least of all sectors during the most volatile economic period in 2008 and 2009 and stabilised in 2010.
"Rentals turned up in 2012 and are now poised for steady growth in 2013 and beyond," says Dibble.
However, the firming of average initial yields over the past two decades by up to 300 basis points realistically suggests that further significant value growth will be tied to uplifts in rental income and only small movements in yields.
Dibble says that if the sector is to blaze ahead, a need for heightened tenant demand to genuinely envelop the market is required.
"The recently released fourth quarter gross domestic product results came through better than the Treasury, the Reserve Bank of New Zealand and a plethora of economic commentators had forecast.
"Leading indicators also point to more positive conditions ahead."
What: Auckland industrial property survey
Conducted by: Colliers International Research
Findings: Industrial vacancy rate down to 4 per cent
Five-year low in industrial vacancy
Conclusion: Bright outlook for industrial property