There is only 167,350sq m of vacant space out of 4.8 million sq m in Auckland industrial precincts. Photo / Supplied
Another strong year in industrial sales and leasing activity looks set to continue, says Scott Campbell, national director, industrial and logistics for Bayleys Real Estate.
"Strong market conditions with industrial sector demand outpacing supply is a consistent trend in Auckland. This is why investors keep choosing to buy industrial property," Campbell says.
In Auckland, Bayleys concluded 202 industrial leases and 181 sales over the past year, comprising an aggregate value of more than $725m of property transacted and 231,675sq m of space.
The strong levels of leasing activity resonate in the latest industrial Bayleys Research report. There is only 167,350sq m of vacant space out of 4.8 million sq m surveyed in Auckland's leading industrial precincts.
The report, to be released in mid-May, found pockets of opportunity are arising due to the recent highs in construction activity, but that had yet to make a significant impact on currently available space.
"Indications are that this tight market will continue over the short-term. This means that tenants who aren't pre-planning may be frustrated with the lack of choice. Rental costs will likely increase," says Campbell.
"Tracts of industrial zoned land being re-zoned and released, especially in growth areas in the north, west and south, may provide some relief."
More space under way
Developers have been busy trying to ramp up development activity as a consequence of the demand. Close to 250,000sq m of space was completed between Bayleys' surveys.
Campbell says this is one of the busiest periods of activity Auckland's seen as highlighted by recent building consent data.
"Our development tracker shows more is on the way. Compounding on the sector's high levels of tenant demand and undersupply is the increase in construction activity. This translates into more tenant demand. A nice problem to have, but still a problem for a sector experiencing such high capacity constraints."
A significant proportion of the development activity is in the south of Auckland, due to its long-term popularity, proximity to motorway networks, the airport as well as the area's availability of land. This skew in new development activity in the area does have its benefits, providing a short window of opportunity for tenants looking for space.
"In the future, development activity will rise. Growth enabled by the Unitary Plan will be provided further south of the main established industrial precincts - in areas such as south of Takanini and Drury," says Campbell. "This highlights the future direction of Auckland's new industrial sector."
Though industrial precincts in the North Shore provide a pivotal role in the servicing of a large population base, land constraints have seen the focus shift to the west and to areas further north, such as Silverdale. North Shore's industrial vacancy rate is just 1.1 per cent.
Rents rising, yields firming
Campbell says Auckland prime industrial net warehouse rents increased a further 3-4 per cent over the past year, with secondary sector rents increasing by between 5 and 6 per cent, albeit from a lower base. "Over the past three years, a common period for reviews, rents are up by around 10 per cent to 12 per cent. Canopy, yard space and operating expenses edge higher as well."
Bayleys predicts existing premises will experience rent increases of between 2 and 4 per cent per annum depending on the level of "over" or "under" renting.
New build premises will likely be near the top of this range. The rate of prime yield compression over the past year has again been significant with a further decrease of 120 basis points to 5.4 per cent.
This rate of compression is likely to slow given interest rates are edging higher. Although investors remain active, they are cautiously confident and are reassessing their levels of risk appropriately.
Yet the rate of prime yield change is still one of the largest and has significantly outpaced other major cities around the world, according to the latest Cushman & Wakefield data.
Further evidence of the sector's popularity is illustrated in Bayleys' research that found 56 per cent of all Auckland's commercial property sale transactions in 2016 were in the industrial sector.
Considering 85 per cent of commercial property transactions in New Zealand sell for $2m or less, industrial property - typically of a lower-dollar-value than the commercial office and retail sectors - provides a large pool of opportunities, but bidding is competitive.
