Industrial areas in Wellington are recovering after a slump, report says.

The Wellington industrial leasing market has reached the bottom of a downward cycle and vacancy rates will probably decline over the next two years, Bayleys Research survey figures suggest.

The survey report says this year's total industrial vacancy rate of 7.46 per cent is up 20 basis points from last year's survey, confirming evidence of an increase in leasing activity over the past 12 months.

But it's not all capital news. While vacancy declined in the industrial areas of Seaview, Miramar and Rongotai, it increased slightly in Ngauranga, Grenada North, and Petone.

But the latest minor rise in vacancy is a marked contrast to increases in the Wellington region between 2007 and 2011, when the overall vacancy rate climbed from 3.1 per cent to 7.25 per cent, reflecting the effect of the global recession and a slow and patchy economic recovery.


Seaview, the industrial area of Lower Hutt, is favoured by logistics and distribution companies because of its supply of large buildings.

Development land is scarce and prices are high, but design-build activity is likely to increase because of a shortage of availability of modern space.

Seaview, the largest industrial precinct in the Wellington region, had a small reduction in vacancy after four consecutive increases. This year's vacancy rate is 7 per cent - down from 7.3 per cent last year.

Industrial vacancy in the city's nearby precinct of Miramar and Rongotai has also fallen from a peak last year to 11.9 per cent this year.

"Traditional industrial users in the area are giving way to the emergence of the film industry, which now dominates," the Bayleys' survey says.

"Changing land use patterns are also changing the face of the eastern suburbs, with large format retail replacing warehouses and factories.

"Reduction in vacancy has come from occupation by 'pseudo-industrial' users such as Mitre 10 Mega and Byers Builders."

Ngauranga's industrial vacancy is 5.47 per cent, up from last year but well below 2009 and 2010.

"The area has a small total inventory, so has volatile vacancy results.

"Ngauranga is a highly visible precinct characterised by specialist buildings with high office components and ample car parking, but premium rents and the specialist nature of buildings has made re-letting space difficult.."

Petone's vacancy is 6.9 per cent, slightly up from last year's 6.1 per cent.

"Vacancy has continued an upward progression which began in 2007," Bayleys says.

"The majority of the vacancy is within a small number of buildings on the precinct fringe. Petone, overall, is characterised by service companies and small-scale manufacturers and is generally a tightly held precinct."

In Grenada North, close to Tawa between Johnsonville and Porirua, vacancy increased for the fourth year to 9.9 per cent.

"While vacancy is up, so too is inventory, with Coca Cola moving into custom-built premises within the same precinct," Bayleys Research says.

As well as increased leasing activity, owner occupiers have played a more significant role in the market over the last 12 months because of a favourable lending market.

Strong indications that interest rates would remain low until the end of next year, and declining returns from bonds, had increased the appeal of property, the report said.

"An illustration of this is the sale of 9-15 Meachen St in Seaview. Strait Freight had been searching for premises in the area for some time before agreeing to the purchase of the property for $4.5 million."

The property comprises a 20 year old, 3400sq m warehouse and office building on a site of 8094sq m site.

Bayleys is also predicting an expansion of industrial development in Upper Hutt, as the proposed Transmission Gully route through to Porirua will give the area a better connections to State Highway 1.

Upper Hutt is already only a 30-minute drive from Wellington's commercial CentrePort, with international and domestic airport services another 15 minutes further on.

The city is also well served by rail with an established freight service to and from central Wellington and the port.

"While recent years have seen the end of a number of the area's traditional industries, such as car making, in many cases the abandoned sites are being given a new lease on life," the report says.

"The buildings are being adapted and occupied by companies meeting the current demands of customers."

"The transition from traditional industry to new occupiers was well illustrated by the leasing success achieved at the ex-South Pacific Tyres property, a 22.5ha site with a building of about 40,000sq m.

The property is known as The South Pacific Industrial Park and offers mixed use units in a wide range of sizes along with extensive yard areas.