Industrial property continues to be the New Zealand commercial property market's top performer according to figures released this week.
The latest Property Council/IPD Property Index, which revalues a $13-14 billion dollar portfolio of property on a quarterly basis, shows that industrial property provided a total return of 10.8 per cent in 2017 — comprising a 6.7 per cent income return and 3.9 per cent capital growth.
This compared with total returns of 9.0 per cent and 6.7 per cent respectively for the other two main sectors of the commercial property market, office and retail.
The index also shows industrial property has been the market's best long-term performer. Over five years, it provided a total return of 12.2 per cent, comfortably ahead of office at 10.6 per cent and retail at 10 per cent. Over the past decade, industrial property has provided a 9.6 per cent total return compared to retail at 7.6 per cent and office at 7.2 per cent.
Scott Campbell, Bayleys' national director industrial and logistics, says there has been a noticeable change in the perception of the industrial sector among investors over the past few years.
"Historically regarded as a solid, defensive asset, industrial property has now become the clear market leader in terms of capital growth and is more sought-after by investors as a consequence.
"The sector's growth is being driven by its strong performance within the New Zealand economy. Manufacturing has shown considerable resilience despite the global challenges posed by our lack of scale; and the logistics and distribution sector is on a real roll. This is likely to continue as the trend towards e-commerce, in retail particularly, increases the demand for distribution premises, big and small."
Campbell says the significant number of large scale transactions being negotiated by Bayleys' Auckland industrial team is a reflection of the strong confidence that exists in this sector of the market at present.
The division recently concluded eight transactions with a total value in excess of $155m, as follows:
• Two of Carbine Rd, Mt Wellington's larger land holdings have sold at a combined value of $54.23m. Close to 30,000 sq m of industrial buildings on a 4.48ha site at 100 Carbine Rd sold for $36.8m to an owner-occupier through Mike Houlker, Sunil Bhana, James Valintine, James Hill and Scott Campbell.
• At 79 Carbine Rd, a 3.2ha underdeveloped site with 6334 sq m of buildings was sold to Kiwi Property Group, owner of the neighbouring Sylvia Park shopping centre, for $27,115,000 through Sunil Bhana and Steve Orr.
• Two confidential transactions involving large land holdings totalling 3.12ha in Mt Wellington and East Tamaki, with retail redevelopment potential, had a combined sales value of close to $40m.
• A distribution warehouse portfolio of four properties in Wiri, Hamilton, Mount Maunganui and Palmerston North sold for $22,195,000 at a 6.32 per cent yield through Scott Campbell, Ben Bayley and James Hill. The properties have long-term lease-backs with expansion clauses to Provida Foods which specialises in the transportation of chilled and frozen goods. The Wiri property, at 138 Wiri Station Rd, sold for around $8.7m at a 5.75 per cent yield with a new 12-year lease. It comprises a 2260sq m coolstore, freezer and distribution facility built in 2011 on a 9287sq m Heavy Industry zoned site.
• A 2.37ha site at 862 Great South Rd Penrose sold to Augusta Capital Industrial Fund for $19.05m through James Valintine, Sunil Bhana and Mike Houlker. Existing tenant Graphic Packaging International will take a new eight-year lease over about 8450sq m of industrial premises at the rear with the majority of buildings on the roadfront portion of site to be demolished at vendor's expense for future redevelopment.
• Industrial premises of 5746sq m plus a 650sq m canopy built 12 years ago as distribution centre for Cavalier Bremworth on an 8073sq m site at 6 Hautu Drive, Wiri sold for $11.1m through Mike Marinkovich, Ben Bayley, Scott Campbell and Stephen Scott. The NZX listed company exercised the first of two six-year rights of renewal last year. The vendor provided a three-year underwrite to increase income provided by tenant by a further $33,500, resulting in an initial yield of 6.18 per cent.
• A 6317sq m building on a 1.4ha Heavy Industry site at 105 Wiri Station Road, Wiri, with frontage also to Plunket Ave and 88 car parks, sold vacant for $9.85m through Ben Bayley, Karl Price and Scott Campbell. Formerly occupied by Honda NZ, it comprises 4993sq m of medium to high stud warehousing, with the balance a mix of modern and older style offices, and site coverage of around 30 per cent.
Campbell says purchasers at the high value end of the industrial property market comprise a mix of well capitalised high net worth individuals, institutional investors and developers as well as expanding businesses buying vacant premises such as 100 Carbine Rd, Mt Wellington.
"Substantial investors are also looking at well-located vacant and semi-vacant buildings where they can see an opportunity to add value. For example, 105 Wiri Station Rd was acquired by an investor who has a tenant signed up to move in once work being undertaken on the property is completed."
Campbell says historically low vacancy rates across Auckland's industrial precincts are likely to put further upward pressure on rentals this year.
This is reinforced by a recent market sentiment survey of owners and tenants, conducted by Bayleys Research, which shows the majority of respondents expecting rents and capital values to continue to climb this year.
Over 65 per cent of respondents expect to see an increase in industrial property rents, with about 14 per cent anticipating the rise to be in excess of five per cent.
There was a similar outlook for industrial capital values, with 61 per cent expecting them to grow over the year, with 20 per cent picking values to increase by more than 5 per cent.