Residential development and conversion puts pressure on limited stock
Industrial property is becoming a “dying breed” around Auckland’s city fringe as residential development and conversion for non-industrial use puts pressure on already limited stock, property experts are warning.
But the shortage is also creating opportunities for existing owners, who could be sitting on “gold mines” in sought-after suburbs that are ripe for a change of use.
Colliers International Investment Sales Broker Kris Ongley, who specialises in city fringe properties, says there simply aren’t enough industrial properties to satisfy demand.
“Auckland’s limited amount of light industrial buildings in city fringe areas is continuing to diminish in supply,” he says.
“Most of the remaining stock is located in small pockets in suburbs like Eden Terrace, Grey Lynn, and Morningside – areas where there is also strong demand for residential development and non-industrial uses for these buildings.
“As a result, a substantial amount of industrial land has been converted by the Unitary Plan into other zones that allow residential or retail uses, for example, which offer higher returns. That has helped to make industrial properties in the area even scarcer.”
Colliers International Investment Sales Associate Director Jonathan Lynch says industrial properties are “fast disappearing” in his patch, which includes the CBD and surrounding city fringe areas.
“Fringe industrial properties are highly sought after for a range of uses, including textiles, automotive servicing, and warehousing,” he says.
“The problem is, the remaining stock is disappearing – there’s just not enough to satisfy pent up demand.
“We’re also seeing new demand from occupiers who traditionally would have ignored industrial properties.
“They’re looking for character buildings for conversion into funky new showroom, retail and office spaces – particularly in the creative sectors. Older industrial spaces offer many of the design elements these occupiers are seeking – exposed brick, concrete, timber and steel.
“Remaining city fringe industrial properties are typically older, which makes them prime candidates for conversion – particularly in areas that border or are close to existing retail and office activity, such as parts of Grey Lynn and Ponsonby.”
Colliers International Investment Sales Broker Peter Kermode says pressure on the city fringe industrial market is pushing up prices.
“Land and building rates for industrial properties around the city fringe can be much higher than other central suburbs,” he says.
“The prime industrial rate in Eden Terrace, for example, is $3,500 to $4,000 per square metre.
“That is much higher than even sought-after industrial areas such as Onehunga, with a prime rate of $3,000-$3,250/sq m, or Penrose and Rosebank, which both have prime rates of $3,250-$3,500/sq m.”
Kermode says secondary industrial properties in the city fringe can command similar rates to prime properties further out.
“In Eden Terrace, for example, the secondary rate is $3,000-$3,500/sq m, which is comparable to the prime rates in Onehunga, Penrose and Rosebank.”
In Mount Eden, rates are even higher. Kermode says there is minimal industrial land available, but small scale warehousing bordering Grafton commands rates of $4,500-$5,000/sq m.
The city fringe suburb of Morningside offers more affordable land and building rates, due to its location further west of the city.
Light industrial properties have rates of $2,750-$3,250/sq m, while mixed use properties command even higher rates of $3,250-$3,750/sq m.
The question, Kermode says, is what this all means.
“It means that industrial users are getting pushed out of the city fringe and that this is contributing to the rise in values in outer industrial suburbs,” he says.
Forward thinking businesses will have already secured their position further out, Kermode says.
“It also means that there are many owners – both investors and owner occupiers – who might be sitting on city fringe gold mines ripe for a change of use or new development.
“For these owners, we’d recommend they get a full understanding of the potential that their properties hold and to develop future plans based on this potential.”
Ongley says pressure on city fringe industrial supply comes as Auckland’s industrial land becomes scarcer overall.
“The amount of vacant industrial land in Auckland has decreased by almost 40 per cent since Colliers International first started tracking vacancy and absorption rates.
“There was 60.4ha of vacant industrial land in November 2012. Now, there is only 37.9ha available.”
Ongley says those with city fringe industrial assets are in an enviable position.
“With more and more industrial buildings being converted to other uses, and those buildings not being replaced with like stock anywhere else in the inner-city fringe, their values are at an all-time high.”
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