New government and a new year looming – so what can we expect in the industrial leasing sector in 2024?

Bayleys industrial market specialists say as it takes time for a new government to cement itself, don’t expect rapid change to the property market in the next six months.

“Play the ball in front of you” seems to be the prevailing sentiment and with industrial leasing inventory still very tight despite market headwinds, occupiers need to be savvy about pending change or relocation.

Bayleys’ national director industrial, Scott Campbell says vacancy rates across the Auckland market remain fairly stable.

“There’s some sub-lease space coming to the market as occupiers assess and adjust their space requirements and we’re getting good enquiry on that, and smaller industrial premises are leasing well which is positive for the SME market.

“Consumer spending is significantly down and sectors like hospitality are struggling a bit which is impacting large warehousing and other industrial space demand. “However, with handbrakes remaining on the development sector, and new-builds largely on hold, existing stock will need to plug demand heading into 2024 which is likely to hold rental rates firm.”

Bayleys Wellington commercial and industrial director, Fraser Press says the capital’s team is still fielding good leasing enquiry and seeing solid activity, but as 2023 winds down it is clear that there are some challenges emerging.

“Industrial space with scale is still in demand although one-off vacancies are not leasing as quickly as they were at the start of this year.

“Rents have climbed and occupiers enquiring on space are saying ‘wow, is that what I have to pay?’

“Landlords are not being greedy or opportunistic with their asking rental rates – it’s merely a case of recovering some of the substantial cost of owning industrial property. “One landlord has seen outgoings triple since 2007 and rents simply haven’t kept up.”

Press says escalating outgoings including cost of borrowing, rates, insurance costs and meeting Wellington’s stringent seismic compliance thresholds are all impacting landlord bottom lines.

“Tipping point pressure will inevitably come however as tenants’ financial viability and landlord expectations clash.”

“Lack of stock and prohibitive cost means some businesses are moving out of the region with electric motorcycle company FTN Motion reluctantly relocating its business to Hamilton where brand-new, purpose-built space is more cost-effective for them.”

Heading into 2024, Press says there’s good occupier demand for micro-units showing that the SME market is still active, and as there’s no new big shed stock coming onstream, next year will largely see a re-churn of existing buildings as occupiers chop and change.

In Christchurch, Bayleys Canterbury associate director industrial and commercial Sam Stone says leasing activity remains strong for industrial property.

“We have what is possibly the region’s lowest vacancy rate ever and with limited new buildings under construction, demand is likely to be greater than supply in 2024.

“With certainty of government we do have commitment from vendors to sell properties post-election and anecdotally, the business community seems to have confidence in the new government moving forward.”

Stones says proactive developers like Christchurch Airport, Southpark Corporation, Zeal Construction and Calder Stewart understand the demand for industrial buildings and for the changing expectations of occupiers.

“So while there’s a limited pipeline ahead, there’s quiet optimism that the Canterbury industrial market will continue to thrive and innovate.”