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Industrial leasing feels the heat

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It’s been a truism for several years now and it shows no sign of abating anytime soon.

Industrial property is the standout asset class in the broader commercial property market proving to be defensive even when faced with a global pandemic and inflationary headwinds.

The industrial sector was booming pre-2020 – but has utterly thrived during COVID conditions.

Cold storage facilities have been seconded for vaccine supplies, ecommerce transactions have gone through the roof, supermarket chains have expanded their property footprints to optimise distribution efficiencies, and warehousing is even hotter property now as occupiers battle to keep on top of inventories and satisfy tightening on-demand delivery expectations.

These are just some of the reasons the industrial sector around the country is at boiling point and why industrial occupiers are finding it increasingly difficult to secure premises given the acute shortage in the market.

Based on the latest Bayleys’ data which took the pulse of well-established industrial precincts, overall vacancy in Wellington is a mere 1.4-percent and in Auckland, sub-1.6-percent – well below 10-year averages which sit under 4-percent in Wellington and under 5-percent in Auckland.

There’s no simple fix to the industrial property shortage as there’s very little appropriately zoned development land available for new-build stock.

Further, with construction costs soaring, material shortages ongoing and labour force challenges proving a handbrake, the pipeline of forthcoming building work is stymied at several turns.

Looking ahead, when any new projects do come to fruition, developers will need higher rents to justify the costs of building those assets and because of the economic fundamentals currently at play, those leases will more than likely have inflation-linked review terms.

Well-funded heavyweight occupiers are precommitting to development space well ahead of delivery knowing that the market is unlikely to free up given the continued demand for industrial space and also aware that if they don’t put dibs on it, someone else will.

Our industrial leasing teams on the ground around New Zealand are reporting pressure points up and down the country.

Space in the Golden Triangle zone of Auckland-Hamilton-Tauranga is all but saturated, there’s a real shortage in Hawke’s Bay and Taranaki, Nelson-Tasman needs more industrial stock and Christchurch precincts are filling up fast.

As well as the need for industrial space as established businesses organically grow, the pandemic and its associated supply chain hiccups, delays and uncertainties is seeing New Zealand businesses looking inwards to see how they can become less reliant on, and less impacted by, offshore markets and influences.

Regional New Zealand will see new impetus as investors and developers recognise the opportunities that land away from the main centres can offer.

Supported by an up-to $2 million boost from the Government’s Regional Strategic Partnership Fund, a sustainable plastic manufacturing company is to get a new high-class manufacturing facility in Marton in the Rangitīkei region.

Meanwhile, the same fund has given a $1.7 million loan to timber company Techlam in Levin to install machinery for significantly reducing manufacturing waste and turning waste into value-added products.

Awarua near Invercargill looks set to be home to one of Australasia’s largest industrial projects, with the acquisition of 513ha of farmland by property and construction firm Calder Stewart for conversion to development-ready industrial land.

Growth in the tech’ sector is also driving activity in the industrial property market.

New Zealand data centre firm Datagrid will start work on a huge $1 billion-plus cloud computing facility on a 43-hectare site in Southland later this year, while Amazon’s cloud computing arm, Amazon Web Services said it will spend $7.5 billion over 15 years building world class computing infrastructure in Auckland.

In Auckland, space company Rocket Lab is expanding into a new 2,230-plus sqm research and development facility adjacent to its existing premises in Mt Wellington as it grows its operations.

Industrial leasing is a fast game with many moving parts and as our clients are discovering, it pays to engage an experienced Bayleys’ industrial broker in the quest for property.

We are proactive in the market right across the country,

We know when leases are about to expire, we know where the opportunities are, we are ahead of the curve with intel on new developments and we work with leading national and international entities.

This positions us at the front of the queue on your behalf.

So don’t be a stranger – talk to us today.

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