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Industrial Feeding Frenzy

The industrial property sector continues to be the most preferred asset class for those fresh out of the residential sector, as Sally Lindsay discovers.

By: Sally Lindsay

1 April 2022

Among those battling to secure industrial property and land are residential investors who have sold up in the face of poor returns, higher compliance costs and extra tax bills.

And this has led to a rush on industrial assets in the $3-$5 million range by smaller investors at the end of last year and into this year.

“There is a much lower cost for entry into the industrial market, compared to other commercial property sectors,” says Scott Campbell, Bayleys national director of industrial.

However, investors are now competing for limited assets and demand is far outstripping supply every day, he says. “The limited supply is fuelling a feeding frenzy from investors when a strongly-tenanted, well-located property hits the market.”

Even New Zealand’s richest man, Graeme Hart, is getting in on the act. In four deals last year he bought $189 million worth of South Auckland industrial property.

The dearth in developed industrial property has led to a change in focus for investors. The story has turned into the “big industrial land grab”.

In February Campbell sold $220 million worth of industrial land – a rare feat, with Auckland under pressure from a lack of available and suitably-zoned development land.

The land sold was mostly in South Auckland along with a big parcel at Silverdale in North Auckland. It went to investors and owner-occupiers as well as developers to land bank. The Silverdale site is earmarked for New Zealand Post’s new facility.

“There’s a glaring shortage of large-scale land for private ownership in the region, and the logistics, manufacturing and transport sectors are crying out for space,” he says. “This goes along with the huge appetite for any industrial land.”

Developers are looking for anything from 5,000m2 to two hectares. Private investors, developers and syndicates have been chasing any available land. Institutions, who are mainly land bankers, are also bidding hard for plots. One of Hart’s buys was a 28ha block at 31 Prices Rd off Puhinui Rd in the Manukau/Wiri area for $94 million.

The Power of E-Commerce

E-commerce is driving the market. Since Covid-19, bricks and mortar retailers who have not adapted to e-commerce are struggling. “It is quite disturbing to see the retail vacancies in Newmarket,” says Campbell.

Online buying has led to more goods storage demand in warehouses, which at a general 10,000m2 were once considered large. Today, the larger logistics operators want 30,000m2 warehouses, hence the need for bigger sites.

Part of the rush for bigger premises can also be put down to the global shipping crisis. Companies are storing more stock to keep their businesses afloat. The invasion of Ukraine by Russia is deepening the crisis.

Most developers have high demand from owner-occupiers and tenants, but there is little greenfield land available.

Campbell says as the population has grown and industrial property has become a stronger and more desirable market there’s been more demand for warehousing which has put a lot of pressure on available land.

A shortage of land for future industrial development Auckland-wide is adding to the pressure on existing stock in a sector which seems to have a bottomless demand, he says.

“The west Auckland area is incredibly constrained and there is a finite amount of prospective land for industrial development down the track.”

A lot of money is swilling around in the regional market but there is not a large amount of contiguous industrial land available, mainly a lot of smaller infill sites, says Campbell.

“For smaller buyers and developers it is hit and miss. Any existing stock is seeing intense interest when it comes to the market forcing many investors and owner-occupiers to broaden their search parameters.

“It is also difficult to persuade owners to sell as they then have to put their money elsewhere and there aren’t a lot of options.”

As a result land values have increased. Industrial land across Auckland is selling on average above $900/m2. In the blue- chip established areas of Mt Wellington and Penrose land is selling for $1,200- $1,500/m2, and at Bush Road on the North Shore sites are $1,500/m2 plus.

‘Part of the rush can be put down to the global shipping crisis’

Campbell says the prices don’t seem to be deterring developers’ ability to buy and build warehouses, storage facilities, manufacturing sites and logistics centres for lease or sale. “In fact, they seem quite confident about selling their developments and even spec buildings, despite rising interest rates and tight lending conditions, which have affected the market to some extent. Money is not so readily available for projects.”

Consents Up

According to Colliers research there is about 243,100sq m of industrial space under construction across Auckland, one of the largest pipelines recorded in recent years.

Statistics New Zealand consents data for industrial premises over the year to September 2021 reached 383,615m2, up 16.5% on the year prior. While still behind peak levels seen in 2018 and 2019, this is well ahead of the 10-year average of 308,520m2.

One of these developments is Southern Gateway by James Kirkpatrick Group in Manukau with a budget of about $1 billion. There are also various sites under construction by Logos Property in Wiri with a total expected cost of over $90 million.

Expected completion times range from the second half of this year to the first half of 2026.

Campbell says completion dates on many projects have drifted out because the industry lost a year of development due to lockdowns and has been hit with supply chain issues. Wait times of weeks instead of the usual days for steel and concrete, and rationing of plaster board are just some of the frustrations faced by developers and builders.

“Pressure is particularly acute at the prime end of the market with leasing options becoming increasingly limited, driving design-build and speculatively- led new build activity.

“Supported by robust demand from both manufacturing and logistic owner-occupies and tenants, Auckland’s industrial market remains tightly held as demand continues to outpace supply.”

Research also shows warehouse rents are rising, with prime space now commanding an average annual rent of about $144/m2, an increase of just under 7% over the year.


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