Well-designed micro-units offer cost-effective space with strong amenity for smaller industrial businesses – and landlords are being flexible around terms.

Building consent data over the past few years shows that the development market has been increasingly pivoting to the industrial sector, which has been outperforming other property market segments on long-run returns.

A wave of sub-100sqm micro-unit developments have sprung up around the country as developers look to optimise site coverage and benefit from the growth being seen in the industrial sector.

However, with the cost of debt escalating and a bit of a “glut” of stock in the micro-unit market, investors who committed to units off the plans – including some first-time commercial property investors who crossed over from the residential investment market – are having to be flexible to get a return on their investments.

The rent fundamentals do not really stack up for those looking for personal or business overflow storage, but these smaller units still have broad appeal for tradespeople, those needing compact showroom or trade retail space or those with online businesses requiring inventory capacity.

Bayleys national director industrial Scott Campbell says the development pipeline of industrial micro-units has slowed as the cost of debt and construction throws feasibility equations out of line, however there is good supply available.

“Occupiers are spoiled for choice now as there are plenty of opportunities to lease reasonably-priced, good quality, secure units upwards of 70sqm.

“Many investors jumped on the micro-unit train committing to property off the plans when interest rates were super-low and they’ve been caught out by a changing market.

“Fundamentals will come back into line over time and supply-demand dynamics will rationalise, but right now, occupiers are well-placed to find great premises with high levels of amenity and transport connectivity – and they could find landlords keen to structure favourable lease terms.”

Bayleys Wellington commercial and industrial director, Fraser Press says three large micro-unit projects have settled in the capital in recent months, another will settle next month and then yet another one later this year.

“There’s plenty of stock available for lease in the sub-100sqm range and while we have fielded lots of enquiry, leasing has not been at the rate and speed we’d hoped for.

“Landlords are prepared to look at flexibility around the lease structure, and with the cost of money effectively doubling in the last couple of years, they can’t be too hardnosed – in some instance, they may be prepared to take a ‘hit’ on returns rather than have their building empty.”

Bayleys general manager South Island commercial and industrial, William Wallace says there has traditionally been a shortage of smaller industrial units in Canterbury, and there’s next to no new stock offering sub-100sqm units for small business owners to lease.

“If we had stock available in the city fringe areas like Sydenham, Hornby and Phillipstown they’d be really popular with start-up businesses, perhaps a coffee roaster or a personal trainer business.

“Meanwhile, south n Timaru, the developer behind the city’s newest retail complex, The Showgrounds, recently launched The Showgrounds Business Park with 36 freehold commercial units for sale and with completion expected late next year.

“Let’s see how the micro-unit segment of the market ultimately plays out for Timaru business owners looking for industrial premises to lease.”

Bayleys’ industrial leasing brokers are across the market and can link business owners up with an industrial space that meshes with a wide range of operating models.