Industrial sector drives recovery

Aerial view of the Tauranga industrial area.

Leasing activity picks up in Tauranga, with rental of warehouse space spiking.

The industrial sector is leading the Tauranga commercial and industrial property market along a steady, albeit slow, recovery path, says Dickie Burman, commercial and industrial manager for Bayleys Tauranga.

"Industrial leasing activity is picking up and leasing incentives to attract tenants are lessening although still a feature of the market," Burman says

"Rentals for warehouse space have moved up a little from a range of $65 to $80 per sq m in 2012, to $75 to $85 per sq m this year and reflect a shortage of supply; while rentals on the office and showroom component of industrial buildings have remained relatively static at between $80 to $100 per sq m. However, there is a strong distinction between prime and secondary industrial premises."

Burman says there is still an abundant supply of industrial development land in Tauranga, with values ranging from $180 to $315 per sq m.

"Land that is close to the Port of Tauranga is the most sought after. The further from the port, the less interest there appears to be. The exception is the 200ha Tauriko Business Park on State Highway 29 on the southern outskirts of Tauranga, where there has been good development activity, both speculative and design-built."

He says a number of new office developments in Tauranga reflect a flight to quality by tenants, especially given that overall office rental rates have adjusted downwards, making occupancy of higher-grade office space more affordable.

Rentals for prime office space sit between $235 and $300 a sq m. The construction of new premises is leaving significant vacancies in secondary office space and particularly in some dated first-floor offices above retail tenancies. Secondary office rentals are sitting at $120 to $180 a sq m and are expected to remain under pressure over the next 12 months.

Burman says the retail leasing sector is also polarised between prime and secondary retail property. After some softening, rentals for prime space are holding steady at between $300 and $450 a sq m, while rentals for space in secondary locations range from $150 to $250 a sq m.

"The investment market, across all sectors of commercial and industrial property, is experiencing good levels of interest, particularly for prime space with a long-term lease to a secure tenant in a strongly performing precinct. In addition, buildings need sound seismic ratings," says Burman.

"Unfortunately for investors, this type of property is tightly held as owners see little benefit in selling with few other investments offering such a good return. As a consequence of this, and the general pick up in the property market, we are now seeing investors prepared to consider vacant or semi-vacant properties that have added value potential."

Burman says there are a number of initiatives planned or under way in Tauranga that should assist regional economic growth in coming years, which bodes well for the commercial and industrial property market. Infrastructure upgrade plans such as the Tauranga Eastern Link, which is one of the roads of national significance, and the East Coast Main Trunk Railway will allow greater transport efficiencies from the city to surrounding areas.

Development plans include a CBD-located university campus, a marine industry precinct and technology park at Sulphur Point.

"These are all land-intensive development projects that will assist in a recovery of the property markets although they are likely to take some time to come to fruition," says Burman.