The latest overall vacancy rate is now at 2.0% compared with 2.4% recorded a year ago, highlighting a buoyant, but constrained market, typically as a result of the ongoing lack of supply. Vacancy remains well below the 10-year average of 3.8%.
Tighter market conditions have led to an increase in development activity. A variety of smaller owner-occupier products in industrial estates to large scale warehouse premises are under construction. Colliers are currently monitoring 39,111 sqm of industrial space under construction, one of the highest levels of activity on record. Consent data from StatisticsNZ shows an annual average floor area of 36,300 sqm has been issued annually over the past two decades, with 49,847 sqm consented in the year to October 2021.
Rental growth continued over the second half of 2021, and tight market conditions will likely result in further rent rises. Rising labour and materials and the competition for appropriately zoned industrial land are adding to development costs, which are increasing rents for new-build activity. However, the higher rates are testing businesses and their ability to pay higher occupancy costs, especially in a high inflation and rising interest rate environment.
Interest rates are increasing from record low levels, and the Reserve Bank of New Zealand has signalled further increases in the OCR ahead. Industrial property remains extremely sought after, but rising interest rates in 2022 are likely to dampen the level of yield rate compression we have experienced in recent years.
Find the link to download and view the report below, or CLICK HERE to view more Colliers Insights.
