Shore industrial space vanishing
Undeveloped industrial land depicted in this 2005 aerial view of North Harbour Industrial Estate, has largely disappeared. Photo / Supplied
The amount of empty industrial space on the North Shore has reached an all-time low as tenants and owner occupiers scramble to secure what little space is available.
Bayleys Research’s latest vacancy survey of the Shore’s main industrial precincts in Albany shows that only 1.1 per cent of the total industrial accommodation available is untenanted. This is down from an already tight vacancy rate of 1.7 per cent in 2016 and significantly less than the overall historically low vacancy rate of 3.5 per cent across all of Auckland’s major industrial locations.
In the North Industrial Harbour Estate, Albany’s largest industrial precinct, the amount of empty space has dropped from 1.7 per cent to a negligible 0.7 per cent. In the smaller industrial areas of Rosedale and Mairangi Bay, the numbers were little changed at 2.5 per cent and 0.6 per cent, while it’s a similar story in the Wairua Valley where vacancies have been at very low levels for a number of years.
Bayleys North Shore Commercial industrial manager Matt Mimmack says demand for industrial property from both tenants and owner occupiers continues to outstrip supply on the back of a strongly performing business sector.
“Unlike other parts of Auckland, where developers have responded to this situation by creating additional supply, they haven’t been able to do this on the Shore because there simply isn’t sufficient suitable land available for industrial development,” he says.
“There has been a little bit of new development at the Interplex Business Park and Kea Property is building a number of smaller warehouses in the Orchard Business Park, some of which we are now leasing up on behalf of investors who bought them vacant off the plans. But overall there has been little new construction in Albany or the Wairau Valley.”
Despite the challenges posed by an incredibly tight supply of vacant buildings, Bayleys North Shore Commercial’s industrial team has had its busiest leasing year ever, Mimmack says.
It negotiated 83 industrial leases between June 1, 2016 and May 31, 2017, a 14 per cent increase on the previous year, and encompassing 43,268sq m of space, up 25 per cent.
Rentals ranged between $15,000 and $425,284 per annum and totalled $5,613,000, a jump of 20 per cent on 2015/2016.
“Business is booming on the North Shore which is creating a high level of leasing activity, with a lot of corporate movement mostly between existing industrial premises,” says Mimmack.
“This is being driven by business expansion, increased merger and acquisition activity as well as companies consolidating from multiple locations into one property. The fact that tenants with existing lease obligations are in many cases able to sub-lease these premises for close to what they are paying, because of the tight market, is certainly helping stimulate leasing activity.”
Joint Bayleys North Shore Commercial industrial manager Laurie Burt says most of the leases being concluded are still in the traditional North Shore industrial precincts of Albany and Wairau Valley, although a growing number of tenants are now having to look further afield to secure the premises they require — to Silverdale in the north or Kumeu, Riverhead or Hobsonville in the northwest.
He recently leased a 1325sq m warehouse unit under constructions at 39 Westpoint Drive, Hobsonville, for $250,000 net pa to a company relocating from Interplex Business Park, Albany and has the neighbouring property for lease with Matt Mimmack.
Burt says there has also been a noticeable jump, in the order of 10 per cent, in North Shore industrial rentals over the past 12 months because of the very competitive leasing market.
Warehouse rentals now generally range between $115/sq m for basic premises to $135/sq m for high end offerings.
Office space within industrial buildings mostly sits at $200-$250/sq m, depending on quality.
With a shortage of business carparks on the Shore, Burt says it’s becoming more common for valuation companies now to apply car park rentals to industrial properties ranging from $15 to $20-a-week per carpark.
“Rentals have been lagging behind increases in industrial property values for some time now so a catch up was inevitable — particularly given the growing gap between rentals on good quality, modern existing premises and those of new buildings where higher rates are needed because of significantly increased construction and land costs. Rental incentives are also now a thing of the past except on a few larger, long-term leases,” says Burt.
“For the most part, tenants have been willing to pay close to, or in some cases in excess of, these higher asking rentals in order to secure premises in what are often multi-offer situations.
“We don’t see much let-up in this situation over the next 12 months although there are likely to be more moderate rental increases overall.”
The last year also been a good one on the sales side for Bayleys North Shore Commercial’s industrial team with sales volumes up around 18 per cent.
There has been a big increase in the sale of vacant buildings in particular, says Mimmack.
“Unlike, some other parts of Auckland owner-occupier demand for premises on the Shore shows no signs of letting up.
“It is certainly contributing to the low industrial vacancy rate with owner occupiers and investors competing strongly with tenants for vacant buildings.
“In older established industrial areas, like the Wairau Valley, buildings are sometimes worth more vacant than they are tenanted.”