Strong demand underpins NZ’s industrial sector
The industrial property sector continues to display resilience amid short-term challenges, according to November’s monthly research report from Colliers.
The recent surge in the industrial landscape, particularly in logistics, has led to record low vacancy rates across key precincts.
Ian Little, associate director of research at Colliers, says the overall Auckland vacancy rate for industrial property stands at 1.8 per cent, consistent with the previous year.
“However, the prime sector is even tighter, boasting an 0.7 per cent vacancy rate. Similar trends are observed in Wellington and Christchurch, affirming the sector's robust fundamentals,” Little says.
“Responding to sustained demand, the development sector has accelerated its efforts.
“Stats NZ reports approval for an additional 1,188,200sq m of industrial premises in the year to September 2023. Albeit slightly lower than the previous year, the latest figures signal ongoing elevated levels of development activity.
“Auckland spearheads development with 414,440sq m of new industrial floorspace consented in the 12 months leading up to September 2023.”
Data analysed in the report showed the surge in construction has intensified land shortages, especially in Auckland.
Despite lower sales volumes, greenfield development land values have reduced only slightly from the elevated levels recorded late last year when average values reached approximately $1160 per square metre.
Chris Dibble, director of strategic advisory at Colliers, says escalating rental rates are a direct result of tight market conditions.
“Prime grade warehouse face rents in Auckland rose by approximately 33 per cent over the two years leading to September 2023. Similar trends are observed in
Christchurch and Tauranga, though with varying growth percentages,” Dibble says.
“However, higher interest rates and concerns about a cooling economy have induced caution among investors, slowing sales activity.”
Provisional figures for industrial sector sales in the 12 months to June 2023 indicate a total of just over $2.6 billion, the lowest annual figure since 2015.
Despite this decline, the industrial sector remains a cornerstone of commercial and industrial sales activity, comprising over 45.5 per cent of total sales by value in the year to June 2023.
In the face of short-term challenges, including a contraction in the Performance of Manufacturing Index and inflation concerns, the sector remains resilient.
A net migration gain of 118,000 people for the year to September 2023, recorded by Stats NZ, as well as the potential for further growth in online retail activity, offer long-term prospects for sustained growth.
"Despite short-term challenges, the industrial sector remains a critical player in New Zealand's economic landscape,” Dibble says.
“The surge in development activity underscores confidence in its long-term potential underpinned by enduring demand drivers which position the industrial sector for sustained growth in the future.”