Auckland industrial shortage at record high

Auckland’s industrial property shortage has hit record levels, with the latest Colliers International survey finding the lowest vacancy rate in more than 20 years.

The monthly Colliers International Research Report, released today, shows Auckland’s overall industrial vacancy rate is 2.1 per cent.

Colliers International Research and Consulting National Director Alan McMahon says it is the lowest rate since records began in 1995.

“Prime vacancy has declined from 1.7 per cent to 1.4 per cent in the last six months, while secondary vacancy has declined from 2.6 per cent to 2.3 per cent,” he says.

“These historic lows are being driven primarily by demand. There’s been plenty of new industrial development, but the pace simply can’t keep up.”

Colliers International Industrial National Director Greg Goldfinch says more than 250,000sq m of new development has been completed within the last 12 months, including Sistema’s state of the art 53,000sq m factory in Mangere.

“However, the amount of prime industrial space remains tight, which is causing an overflow of secondary demand,” he says.

“We’re seeing that overflow of demand concentrated particularly in Mt Wellington, Onehunga, Penrose, Rosebank and Avondale – areas where there is very little developable industrial land still available.

“On top of that pressure, some 35,000sq m of secondary stock has been temporarily removed from supply due to refurbishment.”

The survey findings follow the latest Colliers International Industrial Research and Forecast report, released last week.

McMahon says the report found underlying market fundamentals are sound.

“The undersupply of good quality industrial properties for investors and owner-occupiers to purchase is the only reason that record sales turnover is not being achieved,” he says.

“Tenants are also operating in a challenging environment with available industrial space at record lows. 

“Developers will try to keep pace with the demand, but areas with limited land supply will feel the impact, especially through rising land prices.”

McMahon says Colliers International’s most recent land survey shows 82ha of industrial land was absorbed in Auckland in the last year, which leaves only about 750ha undeveloped.

“While this may sound like a lot, virtually none of it is available for sale in areas where businesses want to locate.”

With vacancy remaining low, rents are increasing and yields are remaining firm.

“Rents are likely to keep rising, but new supply and a recent surge in rent increases could constrain further growth over the next few years,” McMahon says.

“Yields remain strong, with the prime average at 5.8 per cent, but they are closing in on the cost of debt.”

McMahon says land values across Auckland have increased by over 16 per cent in the past year, reflecting strong levels of demand from both occupiers and investors. Tighter lending conditions may inhibit investment activity over the year ahead.

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