Industrial space shortage sends firms to search afar

Lack of Auckland prime space is forcing industrial companies to look further afield to meet their larger footprint space needs, says CBRE's latest Auckland Industrial Marketview Snapshot.

The agency's research shows that Auckland industrial space available for lease has been continuously decreasing in the last two years with prime industrial vacancy now sitting at a miniscule 0.6 per cent.

Zoltan Moricz, senior director of New Zealand Research for CBRE, says the shortage means industrial occupiers are facing limited options in terms of the number of industrial premises and their overall size.

"This is despite a healthy supply pipeline, which added more than 300,000sq m of new space to the market over the last 18 months," Moricz says.

"These additions didn't create more options for occupiers because about 80 per cent of the new supply is design-built, pre-committed development and, in many cases the new buildings are catering for business expansion rather than relocation and therefore occupiers don't leave backfill space behind."

Commenting on the research results, Claus Brewer, CBRE's national director of industrial and logistics,says Auckland's industrial investment and occupier market is becoming increasingly cramped and large format users are looking further afield than Manukau.

"This year we can expect to see continued interest in Auckland's traditional industrial locations, such as the Auckland Airport corridor, the central corridor, Takanini and Wiri areas.

"However, we will see industrial investors and occupiers looking even further out at Drury and Pokeno. We also anticipate Hamilton and Tauranga will experience strong growth."

Brewer says industrial occupiers need to appreciate that the property market is very different than it was five years ago.

"For businesses looking at the possibility of moving, it's important to consider their options at least two years from expiry," Brewer says.

Moricz says that, for a second consecutive year, take up of secondary quality industrial space in Auckland has been higher in East Tamaki and Wiri than in Mt Wellington and Penrose.

Over 56 per cent of the secondary take-up took place in East Tamaki and Wiri, with less than 17 per cent in Mt Wellington and Penrose.

"With secondary grade vacancy at 2.5 per cent this offers more options for lease, especially in the larger central South Auckland suburbs. However, a number of these options have been vacant for at least 12 months, indicating limited occupier demand for many of these premises," Moricz says.

He says reasons behind the increase in B-grade quality demand in East Tamaki and Wiri include:

• The lack of readily available prime quality properties, pushing occupiers towards lower quality buildings in order to accommodate their business expansions.
• Logistics companies taking up around 75,000sq m of secondary grade space in 2015 in addition to occupying more than 100,000sq m of prime quality space.
• Available secondary grade stock is materially different in East Tamaki and Wiri than in Mt Wellington and Penrose. "Although the latter two suburbs are seen as suitable locations in general, the 'functional obsolescence' of a substantial part of the vacant stock orients occupiers towards suburbs where available options are better in quality and more functional."

Moricz says occupier preference for good quality is stronger than for low cost space, but current rents show that in better quality secondary grade properties, the difference between the rent of a building in East Tamaki can be five to six per cent cheaper than in Mt Wellington and Penrose.

"In the case of Wiri the difference is above 10 per cent which explains why some occupiers turn to suburbs where space is more affordable.

"Penrose and Mt Wellington continue to be sought-after locations but these areas don't currently have the right product for occupiers. Therefore we see, especially in the better quality secondary grade segment, more activity in other suburbs.

"Most of the new industrial developments in recent years took place in East Tamaki, Wiri and in the Mangere Airport area. These areas are increasingly seen as the new industrial centres where major occupiers expand and relocate to. This has clearly lifted their appeal contributing to the fast take-up of many available secondary grade options."