North Shore industrial space squeeze
Bayleys recently sold 8 Arrenway Drive, Albany to a Chinese import-export business for $3,990,000.
Historically low levels of industrial space in the Albany Basin are being squeezed even tighter with the vacancy rate now sitting at just 2.6 per cent, down from 3.3 per cent a year earlier, says Bayleys Research.
Matt Mimmack, Bayleys North Shore Commercial’s industrial manager, says businesses looking for space to lease face competition for a dwindling supply of available buildings, not only from other tenants but also from owner-occupiers.
“Businesses wanting to own their own premises have always been very active purchasers of industrial properties on the Shore but their interest is now at unprecedented levels.
It’s largely the result of historically low interest rates which means they can borrow to buy at a similar or lower cost to renting.”
Mimmack says competition for warehouse space is at its most intense at the smaller end of the market, up to around 500sq m, where most activity occurs, and this is pushing rentals up.
“We are generating multiple offers on properties, in some instances — not unlike the residential market. Tenants are so desperate to secure premises they are offering more than the asking rental.”
Recent examples of this are a small unit in Parity Place, Wairau Valley which had an asking rental of $19,500 per annum, leased at $24,000 pa; a unit in Target Court, Wairau Valley leased for $42,000 pa with an asking rental of $36,000 pa; and premises in Vega Place, Albany which rented for $74,000 pa - $4000 above the asking rental.
Laurie Burt, fellow Bayleys North Shore Commercial industrial manager says industrial rentals have not kept pace with the climbing value of properties. “When I started in the industry back in 2002 rentals were around $180 per square metre for office and $100 per square metre for warehouse. They have fluctuated since then but not that much.
“Yields have moved much more and land values and construction costs have gone up considerably. Industrial rentals in Auckland are cheap compared with other big international cities so upward adjustment occurring now is likely to continue.”
This Orbit Drive building in the North Harbour Industrial Estate was sold to an investor for $5,775,000 at a 6.9 per cent yield.
Mimmack says an acute shortage of available land in the more heavily developed industrial precincts of Wairau Valley, Albany and increasingly, Silverdale, is constraining new build activity.
“This has led to a sharp increase in values for what little land is left which, coupled with escalating construction and compliance costs, means it is becoming very difficult for developers to make their numbers stack up for industrial premises.
“Very firm yields are helping to some extent with their margins but it’s the larger, more established developers, who have generally purchased land some time ago when values were lower, that are the most active — smaller developers have pretty much been priced out of the market.”
An industrial development of significance now taking place on the Shore is in the Orchard Business Park in Albany where Kea Group is constructing five new industrial buildings on Corinthian Drive.
They were available for sale or lease but were all sold well ahead of completion to a mix of owner-occupiers and investors. Some have already been on-sold, including one at $2943 per sq m on behalf of an intending owner-occupier now requiring more space.
Burt says unless other avenues can be found to rezone more land for industrial use in Albany, North Shore businesses will increasingly have to migrate north to Silverdale or northwest to Riverhead, Kumeu or Hobsonville/Westgate — or move across the bridge to areas such as the Airport and Highbrook, where there is a good supply of industrial land.
He says the most affordable option at present is Riverhead.
Trevor Duffin, Rosemary Wakeman and Ashton Geissler recently sold 2122sq m of vacant land there which was zoned for industrial use in a subdivision of the former Carter Holt Harvey site in Sawmill Rd at $237 per sq m.
Mimmack says the North Shore’s industrial property market looks set for another very strong year in 2016.
“With ultra-low vacancies and very strong demand from both investors and occupiers another year of solid price appreciation and rental growth can be expected.
“We are seeing more interest in the industrial property market from residential property investors selling up or diversifying.
“Also, because of the low vacancy rates, more investors are prepared to take on some risk and look at well located properties that may only have a year to run on their lease or in some instances are semi-vacant or vacant.”