Industrial’s stellar trajectory set to continue in 2019
Pressure will remain on industrial rentals while yields could compress further as Auckland’s industrial property market continues on its stellar trajectory.
That’s the view of Greg Goldfinch, Industrial National Director at Colliers International, whose Highbrook-based brokerage team concluded a record year of industrial sales and leasing in 2018, transacting in excess of $1 billion in commercial real estate.
His comments come as the latest figures from Colliers show high levels of tenant demand have pushed Auckland’s overall industrial vacancy rate to a record low 1.7 per cent.
“Fundamentals in the industrial market remain similar to last year, which was highlighted by two of the largest industrial transactions ever recorded in New Zealand,” says Goldfinch.
“There’s a huge shortage of industrial land available for sale, which is consequently fuelling continuing land value appreciation.
“We’re also seeing big shortages of quality buildings for lease, with both prime and secondary vacancy rates at all-time lows.
“There’s less than 200,000sq m of vacant space available in Auckland – half the amount available just five years ago. Consequently we are seeing developers not afraid to spec build projects given their confidence that they will likely lease them pre-completion.
“Rental pressures are expected to continue, following about a 15 per cent increase across the board last year. While those pressures won’t ease, we do expect it to flatten out a little.”
Goldfinch says there’s a huge amount of capital still looking to be placed into the industrial market, but a big shortage of quality investment-grade stock available to the market for sale.
“Continued low borrowing costs and investor demand will put pressure on further yield compression, especially in the sub-$15 million range, where prime yields now hover in the low 5 per cent range.
“Demand remains consistent across a huge price range, from around $500,000 up to $100 million.
“An example of the huge demand we’re experiencing is the sale of Foodstuffs’ 13.12ha distribution centre in Mt Roskill, Auckland, which was bought by Goodman Property last year for $93 million.
“There was huge interest in the asset on Roma Road, with multiple offers both domestically and from abroad.”
The deal – brokered by Goldfinch with Colliers International colleagues Josh Coburn, Richard Kirke and Todd Kuzmich – was the largest single-asset industrial sale on record in New Zealand.
Goldfinch says new land supply is needed to ease the pressure on occupiers.
However, build costs are high, which, combined with high land values, makes industrial developments increasingly difficult to make feasible.
“While 250,000sq m of space is under construction or proposed, with a further 50,000sq m in the longer-term pipeline, we’re expecting higher levels of tenant pre-commitment than in previous cycles.”
Goldfinch says industrial occupiers are growing organically, and larger facilities are being design-built to accommodate them.
Good examples of this are:
- Foodstuffs North Island, which is due to move from its Mt Roskill site to a new 65,000sq m head office and distribution facility at Auckland Airport in late 2020, which will be New Zealand’s largest design-build industrial deal to date, and;
- Waste Management, which will move to a new facility on a 5.2ha site being developed by Stride Property in East Tamaki.
Goldfinch and his team at Colliers were involved in both of these transactions.
He says activity in the market remains strong, with plenty of enquiry across the board.
“All signs point towards 2019 being as strong a year as any on record for the Auckland industrial property market.”