North Shore industrial vacancy ‘below healthy level’
Aerial view over Albany industrial area on the North Shore where industrial vacancy is ‘below a healthy level’.
The amount of empty industrial property space on the North Shore is close to an all-time low, with a recent survey conducted by Bayleys Research showing the industrial vacancy rate for Albany sitting at just 2.9 per cent.
The survey also encompassed the North Harbour, Rosedale and Mairangi Bay industrial precincts, with North Harbour recording the least amount of empty space at 2.6 per cent - a big drop from the previous year’s figure of 5.4 per cent. Further south in the Wairau Valley, the vacancy level is close to zero.
Laurie Burt and Matt Mimmack, leaders of Bayleys North Shore Commercial’s industrial team, say the situation is great news for industrial property owners on the Shore, but it’s not good news for tenants facing higher rentals and a diminishing choice of premises options.
Burt says the supply of industrial accommodation is the tightest it’s been in the 14 years he’s been working in the North Shore industrial property market.
“Vacancy rates are below what we would consider to be a healthy level and this is cramping business activity on the Shore. It’s the result of a crowded market with tenants having to now compete with investors and owner occupiers for vacant premises in a strong economy where demand for business premises is continuing to increase.
“Compounding the problem is the low level of new development activity which is a reflection of both the shortage of industrial zoned land on the North Shore and the impact this has on values,” Burt says.
“Land prices have reached a point where it is hard to make an industrial development stack up financially, particularly where a high percentage of warehousing is required.”
Mimmack says it’s very difficult for businesses wanting more than 3000 sq m of industrial space to find suitable, affordable premises on the Shore, while companies involved in heavy manufacturing are having to look north to Silverdale for suitably zoned properties.
“It’s a big loss for the North Shore when long standing tenants are relocating because they can find better options elsewhere. A case in point is a distribution company needing more space for expansion which recently moved from Albany into 4000 sq m of space in a new industrial building near Auckland airport that offered what they needed at a cheaper cost than premises here.”
Mimmack says North Shore businesses will inevitably face rental increases as landlords and developers justifiably look for better returns in a market where demand is outstripping supply by a considerable margin.
“It means tenants with reviews ‘to market’ in their leases should budget for increases at their next reviews, while those looking to relocate may need to pay more if they are serious about moving. This is already happening with multiple offers being received on some better quality buildings, with tenants in some cases being prepared to offer above the asking rental to secure premises.”
Prices of industrial investment properties on the North Shore are also on the rise, says Burt, fuelled by strong competition for limited offerings. “Yields on industrial properties have firmed to a greater extent than for retail and office over the past 12 months and this is pushing sale prices up. We are now achieving yields of less than seven per cent on strong offerings, something we haven’t seen in a long time. Yields may tighten a little further in the current low interest rate environment but we would expect most future capital growth to come from a significant lift in rentals.”
Burt says the space squeeze in the Wairau Valley and Albany has pushed many businesses further north to Silverdale where a more abundant and cheaper supply of land has been reflected in lower occupancy costs for tenants.
“But Silverdale is filling up fast as well,” says Rosemary Wakeman, Bayleys North Shore’s Silverdale specialist, with only a handful of industrial units currently available for occupation. The development land supply is also dwindling with 1.3 ha at 2183 East Coast Bays Rd the only heavy industrial zoned land Wakeman has on the books. The 60 ha Highgate Business Park alongside State Highway One is offering sites from 4000 sq m to 1.2 ha but its General Business zoning under the proposed Auckland Unitary Plan will restrict its use to light industrial with a 65 decibel limit because it is close to residential areas.
Mimmack says much of the future development “north of the bridge” will be in the northwest. North Shore development companies Neil Holdings and Jomac have secured strategically located big blocks of land close to the motorway in Hobsonville, while sites are also being opened up as part of the development of the Westgate area and around Riverhead and Kumeu.
“The completion of the Western Ring Road from Manukau via the airport to Albany will be key to the further development of these areas and will make the north west a much more connected part of Auckland,” says Mimmack.
Laurie Burt (left), and Matt Mimmack of Bayleys North Shore Commercial.