Industrial property values in Tauranga are mirroring the city's residential real estate market and are reaching record peaks, according to new research compiled by Bayleys Real Estate.
"Conditions are particularly tight within Tauranga's industrial sector, where vacancies have hit historically low levels and upward pressure on rents is intensifying," says Ian Little, Bayleys Research manager.
"Industrial property in the city has seen a tightening in yields over the past 12 months for both prime and secondary assets. Prime industrial yields now range at between 4.5 to 5.54 per cent - tighter than either office or retail property.
"The overall vacancy rate within the industrial property sector is a very low 2.4 per cent - down from 4.4 per cent at the end of 2017. Conditions remain tight across all key industrial precincts - with Greerton recording the lowest vacancy rate at just 1 per cent.
"In the Tauriko precinct, a few speculative and recently-completed developments with multiple smaller strata units have been sold or leased. With little additional land available until further roading and infrastructure is put in place, conditions are expected to remain tight at Tauriko for some time.
"Tauriko land prices and tenanted investments over the past few years have seen 'A' grade properties selling at yields of less than 5 per cent.
"An example of this is a newly-constructed 683sq m industrial property in Paerangi Place, with an eight-year lease to Bay of Plenty Asphalt Ltd, that sold in February this year for a yield of 4.3 per cent."
Little says that the Mount Maunganui industrial property precinct – linked to the Port of Tauranga will continue to piggy-back off the wharves' prosperity – due to the strong growth in horticultural and forestry exports, and record cruise ship activity.
"Under such buoyant economic conditions, prime industrial land at the Mount is now selling for up to $1100 per sq m," he says.
"Moving south, tight vacancy levels in Papamoa's industrial precinct reflect growth constraints in the area due to the continuing encroachment of residential developments.
"Longer term, the supply of additional industrial land along this coastal stretch of Tauranga and the Bay of Plenty is likely to come from greenfield areas such as the 250ha Rangiuru Business Park near Te Puke.
"A beneficiary of these conditions at Mount Maunganui and Papamoa has been industrial property pockets in Judea. Although much of the stock in Judea is older and secondary in nature, there has been firm capital growth over the past 12 months."
Bayleys Research also notes that Tauranga's office sector is undergoing a 'renaissance' which will ultimately lead to a more vibrant and dynamic central business district.
"Although many of Tauranga's larger office occupiers are housed in modern office space along the Cameron Rd ridge, an increasing number of smaller office occupiers are venturing back into the CBD as new projects emerge," Little says.
"New office builds over the past few years have added to the overall stock of prime space in the city centre and have resulted in rents generally tracking sideways while much of this space has been absorbed. A similar pattern is expected over the next 12 months.
"However, there is no doubt that the current level of CBD construction activity is taking its toll on many retailers - with trade being severely disrupted."
Little says, that like the industrial property sector, yields of around 5 per cent are being recorded in Tauranga's commercial real estate market.
"These include a single-storey office building at 40 Selwyn St Tauranga which sold at a yield of 4.85 per cent, and a four-level office building at 49-51 The Strand which sold in February this year at a yield of 5 per cent," he says.
"Likewise, in the retail sector, strong investor demand for a limited amount of retail properties has seen yields remain firm, as evidenced by the sale of the Ridge Plaza retail complex at Bethlehem for $3.05m at a yield of 5.1 per cent."