Why Auckland’s industrial market ‘hasn’t missed a beat’
As other sub-sectors of the commercial property market continue to shake off Covid-19 related shackles and the residential sector faces new legislative barriers, the industrial market charges ahead, defined by high demand, low vacancy rates, steady rents and robust returns for investors.
Launching Bayleys Research’s latest Auckland industrial market update, Scott Campbell, Bayleys’ national director of industrial, said the “big shed” industrial sector has taken everything the global pandemic threw at it, and emerged a winner.
“It’s a sector that simply forges on, with industry data confirming that on
15-year long-run income return averages and capital growth, industrial property heads the league table.
“We have seen significant yield compression over the past six months, with evidence showing that prime assets in good locations with strong tenant covenants are transacting at yields averaging between 3.7 and 4.15 per cent – or better.
“We’re getting hints that yields are starting to stabilise, but there is still historically-low vacancy Aucklandwide, with the wider airport precinct at sub-1 per cent and the North Shore at
1.48 per cent.”
Campbell said industrial land values went up 22 per cent in the past
12 months and developable land is still very hard to come by, with the majority held in institutional or high net-worth ownership.
“In the Auckland region, land zoned for industrial use is pretty much all spoken for – even as far south as Drury where all titled land has been snapped up and developers are awaiting the next tranche to come to the market.
“Given the sheer demand for industrial property and the evergrowing e-commerce market, we would expect to see more industrial land released or other land rezoned to meet this surge.”
Bayleys estimates there is around
500,000 sq m of new industrial development on the drawing board in the Auckland market, to be cycled out over the next two years.
“This is generally for new warehouse space in developments larger than 10,000 sq m,” said Campbell.
“Strategic planning by businesses in response to e-commerce growth has highlighted tangible gaps in the existing market. Hence the scramble for land sites and the facilitation of purpose-built premises that can support operations with scale.
“Much of the new space that will come on stream between now and 2024 is pre-committed, with business operators working closely with developers on build-to-spec projects.”
The growth in e-commerce is
fuelling the urban logistics component of the market, with Campbell saying that consumers’ last-mile delivery expectations are driving competition for centrally-located warehouses to meet those fulfilment demands.
“According to NZ Post data, Kiwis spent nearly $6 billion online in 2020, with 11 per cent of all shopping now done via clicks,” said Campbell.
“Further, one-third of online spend is from the Auckland region which underscores the need for optimally positioned industrial property that is well networked to transport arterials and ports.
“Investment in state-of-the-art mega-distribution centres by New Zealand’s grocery giants Foodstuffs and Woolworths NZ Ltd – with developments in the airport precinct and Wiri, respectively – illustrate the growth in the food slice of the e-commerce pie.”
Campbell said one positive from lower visitor numbers through Auckland Airport has been progress on roading infrastructure in the broader airport precinct. “Auckland Airport is one of the most active developers in the Auckland region and while Covid may have stalled visitor movements, the pause has provided relief to traffic congestion and allowed some vital roading infrastructure to proceed at pace which ultimately will streamline operations for occupiers.”