A report by Colliers International says a critical shortage of industrial buildings around the country is driving up both rents and purchase prices for buildings, particularly in Auckland and Wellington where the market is capacity constrained.
“Developers have upped the ante, but they too are experiencing constraints in land availability, pricing, and suitable infrastructure, as well as increasing material and labour costs,” says Collier’s research and consulting director Chris Dibble.
Colliers national director of industrial sales and leasing, Greg Goldfinch says the message is that tenants and purchasers are having to ‘meet the market’ – especially in areas of very low levels of supply like parts of Auckland and Wellington.
The current outlook suggests more of the same for the industrial market nationwide for the next year.
Collier’s report forecasts little relief for new entrants who won’t meet the market’s new pricing levels. It highlights key national trends likely to play out in the industrial market over the next 12 months:
In the main cities, capacity may become an issue as the pace of construction activity is not sufficient to keep up with demand, particularly in Auckland. This lack will keep rents rising steadily, but likely below 3% p.a.
Wellington’s pace of absorption may slow over the next 12 months due to reducing supply rather than decreasing demand. Tenants are finding it increasingly difficult to locate suitable space to lease. Consequently, rents will rise – possibly at higher rates than in the past 12 months.
Christchurch’s market is likely to enter a period of change as demand pressures reduce fractionally after a continued period of significant demand. Rents are likely to remain broadly in line with current rates, albeit around 20% and 30% above pre-earthquake rates.
Hamilton’s recent boost to leasing activity reduced vacancy rates and kept the pressure on investor’s when bidding for prime space. Land supply remains a vital component of the sector’s health with recent uptake by the Ports of Auckland generating opportunities for others.
Limited leasing availability in Tauranga’s industrial market continues to keep market conditions tight.
Tauriko is a hotspot of activity, signaling that well-serviced land supply is a key factor in alleviating demand pressures, in particular for the continuation of the building sector and ports and logistics sector.
The gap between prime and secondary property performance in Dunedin continues to increase. Tenants and investors focus on quality, lower maintenance costs and space efficiency.
Several strongly performing local and national businesses are undertaking major industrial development projects. Competition from purchasers remains high supported by attractive debt costs to yield gaps.
