Auckland’s industrial property sector continues its stellar run with investors, owner-occupiers, listed entities and syndicators all vying for a stake in the constrained market.
Latest insights and data from Bayleys show that benchmark industrial rents are on the rise due to the persistent demand for space, the decade-low vacancy levels, and to offset rising construction costs in new developments.
Investors are expected to become more selective when acquiring industrial assets, yields are tipped to stabilise on the back of rises in wholesale interest rates, while in the development sector, favourably-zoned land remains in short supply with challenges ahead for cost-effective project delivery.
Scott Campbell, Bayleys’ national director industrial and logistics, said looking at long-run income return averages and capital growth indices, the industrial sector continues to outperform other commercial investment asset classes.
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“The sector has emerged from the eye of the pandemic storm in very good heart and while we do expect some shifting of goal posts in the year ahead, industrial remains a resilient, sought-after and viable sector.
“The overall vacancy rate for Auckland industrial property is just 1.6 percent – the lowest levels recorded in 10 years – with a 71.93 percent decrease on 2011 survey figures when overall vacancy was 5.7 percent.
“Occupiers looking for space in Otahuhu, East Tamaki, Wiri, Penrose and West Auckland are increasingly hamstrung and the search parameters are circling outwards at a great rate of knots.”
Across 2021, benchmark prime industrial yields in the Auckland region were at 3.75-4.5 percent and while yields are anticipated to stabilise in the wake of wholesale interest rate increases, Campbell said the sheer weight of capital seeking placement of funds is likely to provide some balance.
“New Zealand-based investors have benefited from closed borders, and have been quick to acquire property nationally.
“With the border opening back up to the rest of the world, we foresee an upswing in overseas buyer interest and investment here – particularly from large Australian-based institutional buyers who will come over to scope out opportunities.”
The battle to secure industrially-zoned land continues, with pricing on industrial land more than doubling in the last five years and precincts expanding on the fringes of Drury and P?keno now popular.
“Occupiers are increasingly having to extend their Auckland search perimeters out to the region’s fringe or, at last resort, into other regions,” explained Campbell.
“The restricted supply of land is also hindered by infrastructural handbrakes and by the fact that the pool is dominated by a small number of parties who prefer not to sell, or will only sell as land and building packages,” said Campbell.
“Meanwhile, rising construction costs and gnarly supply chains are adding to development feasibility challenges for landowners within the sector.”
Campbell said low vacancy levels are giving confidence to speculative developers, however there is increasing concern over costs.
“Where these cannot be immediately bridged by higher rents, it is anticipated that parties will tend to delay development rather than sell the land.
“Although this is unlikely to put any downward pressure on land prices in the short-term, it may slow the growth in prices relative to what has been seen in recent years.”
The demand for distribution warehousing driven by the growth of e-commerce is the single largest influence on the industrial sector currently, said Campbell.
“The historically-low vacancy rates are translating into fast lease uptake when available, and properties are being leased well in advance of actual lease expiry dates or physical vacancies.
“This means occupiers need to be planning earlier and some are making early commitments for extra space to pre-empt and support business growth.”
The shortage of warehousing is also driving and facilitating the potential uptake of automation to increase efficiency in warehouses.
“Technology like automated picking may enable more-effective use of space, but will also require corresponding capex investment upfront,” said Campbell.
“Updates to fire regulations stemming from improved sprinkler technology are enabling greater warehouse heights, however developers and existing building owners will be cautious when committing to increasing volumetric storage at warehouses given fitout delays and supply chain disruptions.”
Campbell said larger occupiers, in particular, are intent on reducing carbon footprints as they incorporate greater sustainability into their operational targets.
“Developers are responding with environmentally-sound design, and energy-saving certifications and technology, with listed and institutional entities absolutely committed to green principles and leading the way in this space.”
- Article supplied by Bayleys
