Construction cost inflation "is well under way", according to the latest Turley & Co property market reports.
The Industrial and Office Property Market Reports both say limited builder capacity will increase new building costs "with valuation effects for built property".
Prime industrial property investments are keenly contested due to limited supply, but there is a good supply of bare land, including the newly-consented Food Hub site in Hastings' Elwood Rd.
There were good levels of new industrial buildings, relative to "ordinary economic conditions", especially in Napier.
Values were stagnant and possibly no longer declining.
The Office Property Market Report said Hastings and Napier have both had significant CBD renewals since 2011 "which is long-term very positive for Hawke's Bay commercial property, plus major new industrial developments". Office demand was "overall flat", with "little discernible tenancy demand change/expansion/growth 2013-14".
State sector office demand, "considerably reduced since 2008" was now "very tight". "Considerable new and upgraded office supply" was not fully leased.
Some new buildings were setting very high rent precedents with "undisclosed inducements" and were diminishing existing offices' marketability/competitiveness.
The report said Ahuriri office developments since 2004 affected inner-city Napier offices supply-demand conditions, but also improved the inner-harbour district's vibrancy.
"Land use changes at Ahuriri have been net effects positive for Napier and Hawke's Bay."
Seismic rating remained key. "As reported since 2011, we expect continuing rent values divergence for relative seismic grade and other qualitative considerations. "Premium rates are likely to increasingly apply for modern office buildings at 80 to 100 per cent of the National Building Standard or greater. Increasingly in 2012-13 tenants voted with their feet."
