Moving away from office buildings reveals future for NZ property leader.

With vacancy rates for Auckland industrial property hovering around two per cent, it's just about time to put up the 'no more room' sign.

Latest figures from Statistics New Zealand show Auckland's GDP topped $100 billion (38 per cent of the country's total) but supply of industrial property is lagging demand.

So Goodman Property Trust's move this month to divest its VXV Precinct at Wynyard Quarter, to focus its $2.2 billion property portfolio in the Auckland industrial market, leaves it soundly positioned for growth.

"We're selling pure office buildings and focusing on industrial, the strongest performing commercial property sector in New Zealand," says James Spence, director of investment management for Goodman. "Data from the MSCI Property Index show that returns from prime industrial property have out-performed other sectors over the last 3, 5 and 15 years. In the year to March 31, industrial recorded a 12.8 per cent return compared to 7.7 per cent and 12 per cent for retail and office property respectively."

Advertisement

Auckland's role as the main distribution centre for the country, with the biggest port and airport, means the trust's strategic investments in key locations around the city help attract customers and support the high occupancy rates.

Spence points out that because their industrial customers – logistics and distribution operators mostly, rather than dirty factories or "old industry" - share pretty common characteristics, the facilities can be built quickly and easily tweaked for individual clients.

"We know what makes a shed work for our customers - it needs to have good access, clear heights, wide turning bays for trucks and a quality office in front. The quality of the offices has improved to such a level they can be as good as, if not better than, any suburban office."

While the company's largest investment at Highbrook Business Park is some $1.2 billion, it is distributed across 60 (soon to be 80) individual buildings, making it a liquid asset. In total, the business's one million sq m of space is occupied by around 200 customers.

"Industrial units have a much shorter build time than many other property classes, of between 9-12 months, it's very simple and less complicated. We can make decisions on where the market is going on the short to medium term; it's a real benefit to us, there's far less construction risk."

Spence says Goodman has found the cost of owning and maintaining industrial buildings is much less capital-intensive than office buildings, as they are less complex and technical in nature. Customers are also more stable and less likely to move around.

More importantly, the quality of the Goodman offering means customers are keen to stay within the portfolio as they grow. Stationery giant ACCO Brands New Zealand (which recently bought Pelikan Artline) has moved from 2600sq m in Penrose to nearly 8800sq m in Highbrook, while logistics specialist Coda has quadrupled its tenancy at Savill Link from 10,000sq m to over 40,500 in only three years.

Sean Delaney, General Manager of ACCO Brands New Zealand says: "We are very happy with our new custom built warehousing and office facilities which Goodman project managed. There was a smooth transition with an excellent level of communication."

It's a continuing story with the announcement in May that Plytech, another customer at Highbrook Business Park, is doubling its space requirements with a new 5100 sqm design-build facility.

Industrial properties, with their higher component of land-to-building value (compared to an office tower), also provide for strong capital appreciation as Auckland land prices escalate due to demand for housing.

Combined with zoning changes across Auckland (former industrial land in Tamaki, for example, now has higher-value mixed-use zoning) has delivered the company greater development potential.

Greenfield industrial land is becoming increasingly rare. Goodman's last purchase was in 2012 and undeveloped land now makes up less than five per cent of the portfolio (compared to 12 per cent six years ago), so its focus will include the re-development of brownfield sites within its portfolio (re-purposing of an existing sites).

"Our current focus is developing out our land bank at Highbrook, but in the medium term our focus will include the redevelopment of some of our existing properties," says Spence. "There's a lot of opportunity there."