101 McLaughlins Road: one of the Auckland properties offered. Photo / Supplied
A newly launched industrial investment opportunity allows investors to capitalise on the success of New Zealand's top-performing property asset class at an affordable price point.
Oyster Industrial is underpinned by two newly developed properties in South Auckland's sought-after Wiri industrial precinct, supported by long-term leases and fixed rental growth.
From a minimum investment of as little as $50,000, investors are projected to receive annual pre-tax cash returns of 5.25 per cent.
Oyster and Colliers International will market 358 parcels of shares in the company, each comprised of 50,000 shares.
Investors can tailor their investment by applying for one or more parcels.
Charlie Oscroft, Syndications Director at Colliers, expects the fund will have broad appeal for a wide range of investors.
"Oyster Industrial represents a premium investment opportunity, underpinned by an asset class that continues to go from strength to strength.
"Industrial is the strongest performer in New Zealand's property market – and Auckland is the investment location of choice.
"Record low vacancies, ongoing rental growth and a limited supply of new buildings have created enormous demand for industrial property investments throughout Auckland."
Oscroft says Oyster Industrial gives investors the opportunity to acquire shares in the land and buildings of two prime properties in one of Auckland's best-connected industrial precincts.
"The properties at 101 McLaughlins Road and 12 Harbour Ridge Drive are both modern, high-quality industrial facilities that were design-built within the last two years.
"Both provide excellent access to the airport and motorways, with State Highway 1 and SH20 providing excellent linkages to wider Auckland.
"The Wiri Inland Port provides another commercial freight option, with connections to the Ports of Auckland and the national train network."
The properties have a combined valuation of $31.6 million, and are tenanted by national brand Plumbing World Ltd and milk powder processor and exporter NBL (New Zealand) Ltd. The leases have a weighted average term of 9.12 years as at August 2019, returning a combined $1,482,268 in net annual rent.
The McLaughlins Road property, developed in 2018, comprises a 7,176sq m facility on a 9,605sq m freehold site.
Tenant Plumbing World Ltd has over 50 branches nationwide and is the major trading division of the cooperative NZPM Group Ltd.
The initial lease term is for 10 years to May 2029, with two further rights of renewal of five years each, backed by a parent company guarantee.
The lease includes 2 per cent annual rental increases, including on renewal, plus a market rental review upon the fifth anniversary.
The Harbour Ridge Drive property, developed in 2017, comprises a 4,682sq m industrial facility on a 6,140sq m freehold site.
Tenant NBL (New Zealand) Ltd specialises in milk powder processing for export to its China market. Products include infant milk powder and dairy-based supplements.
The initial lease term is for 10 years to November 2027, with two further rights of renewal of five years each. The lease is supported by a bank-issued 12-month rental guarantee.
The lease includes 2.5 per cent annual rental reviews, including upon renewal, when there is also a market rental review.
Oyster Industrial and its properties will be managed by Oyster – a leading New Zealand commercial property and fund manager.
The company has expertise in property fund structuring and equity raising, and currently manages more than 20 property funds structured for retail and wholesale investors including the diversified Oyster Direct Property Fund.
Oyster manages a range of retail, office and industrial assets throughout New Zealand, with a combined value in excess of $1.7 billion.
Rich Lyons, Capital Sourcing Manager at Oyster, says the new fund reflects appetite for industrial investments.
"We know from investor feedback that there is strong demand for an investment vehicle which provides direct exposure to prime industrial assets.
"Oyster Industrial was established to provide this exposure, at a price point allowing investors to acquire shares in assets that would typically be out of their price range."
Chris Dibble, Research and Communications Director at Colliers, says Auckland's industrial market fundamentals are sound.
"Tenant demand remains strong, driven by strong economic activity and business expansion in Auckland.
"In Colliers' February 2019 vacancy survey, a further reduction in available space was recorded pushing vacancy to just 1.5 per cent, or less than 200,000sq m of vacant space. Both prime and secondary vacancy rates are at all-time lows."
On the supply side, the development pipeline of some 273,960sq m is up from six months ago but is unlikely to alter the current demand and supply imbalance.
"With supply at such shortages, there is significant capacity for more development activity to proceed if possible, but significant market constraints will restrict this from occurring.
"Conditions are forecast to remain tight, especially for prime premises in areas like Mt Wellington, Penrose, Manukau, Wiri and East Tamaki."
With the market tight, industrial office and warehouse rents have grown by a combined 5 per cent over the past year.
Average net face prime rents are projected to continue increasing by around 2 per cent to 3 per cent a year. Some locations may experience top-end rents increasing by 4 per cent, while incentives will remain low.
Dibble says investor and owner-occupier activity is strong.
"Of Auckland's $10 billion in commercial office, retail and industrial sales activity in 2018, almost half of all transactions were in the industrial sector, representing almost 40 per cent of the total value.
"The low interest rate environment and strong demand has supported the industrial sector with prime average yields ranging between 4.8 per cent and 5.5 per cent in Auckland.
"Capital values have increased significantly due to both rising rents and firming yields. The growth rates are likely to rise by 10 per cent over the next 12 months."
Dibble says market fundamentals are aligning to provide a further uplift in industrial sector conditions.
"Tightly controlled land ownership and high construction costs will moderate the development pipeline and keep space availability low, especially for prime spots.
"Rising rents and firmer yields will continue to drive investor confidence over the next 12 months."