Industrial rents on the rise

Thursday 26 April 2018

Strong demand is driving the Auckland and Wellington industrial property markets to new rent heights, according to new Colliers International research.

By The Landlord

The latest Colliers Essentials industrial market snapshots show that rents are tracking upwards in both Wellington and Auckland while yields continue to firm.

In Wellington, the overall industrial vacancy rate dropped to a record low of 2.1% as of November 2017, which was down from 2.9% a year earlier.

Colliers International research manager Leo Lee says Wellington’s industrial property supply has been constrained by a shortage of available land in the region.

“There have been several small new builds around Wellington recently, but these have primarily been undertaken by owner-occupiers, providing little relief for the industrial rental market.

“With little new stock entering the market and strong tenant demand, we’re continuing to see rental growth and further yield compression.”

Prime industrial warehouse rents in Wellington now average $127/sq m gross, while secondary rents average $98/sq m gross.

Lee says that means prime yields have firmed to 7.5%, while secondary yields are at 8.7%.

“Low vacancy rates and ongoing demand pressures will continue to put upward pressure on rents over the next year.

“Yields will also continue to firm through 2018 due to the lack of available stock for sale.”

Meanwhile, in the Auckland market supply remains tight and out-of-pace with demand, the research shows.

Currently, there is about 250,600sqm of vacant industrial space available in the Super City, with around 210,444sqm under construction. A further 152,924sqm is proposed to be built by 2023.

Auckland’s overall industrial vacancy rate did inch up to 2.2% as of February 2018, from 1.9% a year ago.

But Lee says the prime vacancy rate remains tight at 1.5%, while the secondary vacancy rate has nudged up to 2.5%.

While the shortage of industrial space has accelerated the development of speculative new builds, like Goodman Property’s expansion of Highbrook Business Park, it has also led to a led to a 35.5% decline in industrial property sales.

Provisional figures for 2017 show $1.07 billion of industrial property was sold in Auckland last year, compared with $1.66 billion in 2016.

Lee says strong investor demand has pushed industrial yields to record low levels, with prime yields now at an average of 5.8%.

“Near-term capital growth is anticipated, principally from rental growth. Prime net warehouse rents are up, at an average of $121/sq m, while secondary rents average a net $101/sq m.

“Prime rents will continue to track upwards as Auckland’s industrial supply continues to play catch up with demand.”

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