Auckland industrial sector thriving despite headwinds
Auckland’s industrial property sector continues its stellar run with investors, owner-occupiers, listed entities and syndicators all vying for a stake in the constrained market.
Latest insights and data from Bayleys show benchmark industrial rents are on the rise due to the persistent demand for space, the
decade-low vacancy levels and to offset rising construction costs in new developments.
Investors are expected to become more selective when acquiring industrial assets, yields are tipped to stabilise on the back of rises in wholesale interest rates, while in the development sector, favourably-zoned land remains in short supply with challenges ahead for costeffective project delivery.
Scott Campbell, Bayleys’ national director industrial and logistics, said looking at long-run income return averages and capital growth indices, the industrial sector continues to outperform other commercial investment asset classes.
“The sector has emerged from the eye of the pandemic storm in very good heart and while we do expect some shifting of goal posts in the year ahead, industrial remains a resilient, sought-after and viable sector. The overall vacancy rate for Auckland industrial property is just 1.6 per cent – the lowest levels recorded in 10 years – with a 71.93 per cent decrease on 2011 survey figures when overall vacancy was 5.7 per cent.
“Occupiers looking for space in Otahuhu, East Tamaki, Wiri, Penrose and West Auckland are increasingly hamstrung and the search parameters are circling outwards at a great rate of knots.”
Across 2021, benchmark prime industrial yields in the Auckland region were at 3.75-4.5 per cent. While yields are anticipated to stabilise in the wake of wholesale interest rate increases, Campbell said the sheer weight of capital seeking placement of funds is likely to provide some balance.
“New Zealand-based investors have benefited from closed borders, and have been quick to acquire property nationally. With the border opening back up, we foresee an upswing in overseas buyer interest and investment here – particularly from large Australian-based institutional buyers.”
The battle to secure industriallyzoned land continues, with pricing on industrial land more than doubling in the last five years. “The restricted supply of land is also hindered by infrastructural handbrakes and by the fact that the pool is dominated by a small number of parties who prefer not to sell, or will only sell as land and building packages. Meanwhile, rising construction costs and gnarly supply chains are adding to development feasibility challenges for landowners within the sector.”