Squeeze on industrial yard space

Users of industrial yard space are facing a worsening shortage of property available for lease, as more and more vacant space is developed to meet the ongoing demand for warehousing in Auckland.

Savills Auckland’s industrial team members say many users of yard-based property have been edged out of the city’s central industrial areas, where vacant land has become extremely scarce.

Jesh Jaskiewicz, industrial broker with Savills Auckland, says businesses which require yards for activities such as truck parking or storage of containers, earthmoving equipment or vehicles, are finding it increasingly difficult to find suitable sites to lease.

“We are aware of a number of tenants looking for centrally-located yard space in the 1,500 to 4,000 square metre size range, which is highly sought after at the moment,” he says.

“Many of these tenants are starting to head south to locations such as Drury and Takanini after coming up against a very tight leasing market for yards close to central Auckland.”

The unprecedented demand for warehousing over the past few years has meant that larger investors and developers of industrial property have responded with increasing levels of construction.

This has included many spec build developments which have generally been leased on or before completion, says fellow Savills industrial broker Scott Worrall.

“The bigger land owners, developers and investors who were astute enough to purchase large tracts of centrally-located industrial land at a much lower cost than today’s prices have been in a good position to undertake viable warehouse developments, even with the increase in construction costs,” he says.

“The resulting reduction in undeveloped land over the past couple of years as these new developments have been completed is pushing traditional yard-based users out.”

Additional demand has been placed on the market by several large government and privately-owned entities which are undertaking big infrastructure and construction projects in central Auckland.

Yard-based property in areas such as Mt Roskill has been sought after by these operators, who require centrally-located sites from which to service their projects, says Worrall.

“Those organisations who are working on large projects in the central city are all looking for yard space, but they’re now having to look further afield to find suitable property.”

The shortage of yard-based property is also causing rents to rise, with rates for unsealed yards now at least $30 per square metre in many locations, with the more sought-after central suburbs commanding higher rents of around $35 a square metre in East Tamaki and up to $40 per square metre in Penrose, Mt Wellington and Ellerslie.

“Rent rises across the city are the inevitable result of the current migration of yard-based users from Penrose and Mt Wellington to the next most central industrial areas including East Tamaki, the Airport precinct and Wiri,” says Jaskiewicz.

Demolition or development clauses are becoming a more common feature of yard leases in the more central industrial areas as the land shortage worsens, he says.

“Many landlords who are leasing yards in today’s market are adding clauses to lease agreements which allow them to give a notice period to tenants to vacate the property before the end of the lease term, as they want the flexibility to be able to develop their sites and take advantage of the current high demand for warehousing.”

For new leases on Penrose and Mt Wellington sites the notice periods in these clauses can now be as short as three months, Worrall says.

“This trend means there is often not a lot of security in the current market for prospective tenants of yard-based property, however it has not really dampened the demand for yards in the sought-after 1,500sq m to 2,000sq m size range as businesses still have a requirement for storage space.”

Among the leases of yard-based property concluded by the Savills team in recent months include 3,400sq m of land at 35 Oakleigh Ave, Takanini; a 5,700sq m yard at 52 Cryers Rd, East Tamaki; a 1,000sq m site at 83 Harris Rd, East Tamaki; and a sealed 2,600sq m yard at 4 Ormiston Rd, East Tamaki leased by Jesh Jaskiewicz.

In addition, Scott Worrall has leased 2,500sq m of yard space at 831 Great South Rd, Mt Wellington; a 1,300sq m yard at 7-23 Cain Rd, Penrose and an 800sq m site at 70 Favona Rd, Mangere.