APPD Market Report Article
AucklandAugust 26, 2022
Gavin Read, Head of Research, New Zealand
Extremely low vacancy continues
- Supported by robust demand from both manufacturing and logistic occupiers, the Auckland industrial market remains tightly held as demand continues to outpace supply. Historically, the market has exemplified a low vacancy environment. The latest 1H22 JLL vacancy survey results show that overall vacancy fell further, by 20 bps from 0.9% to 0.7% with tenants competing strongly for space.
- Despite supply chain-related disruptions, Auckland’s industrial market remained competitive with demand/supply imbalances. There has been an increase in enquiries, conversations, and meetings with offshore investors, indicating further international capital to be invested in New Zealand’s commercial estate. This is clearly a benefit of the reopening of New Zealand’s international borders.
Strong market performance attracts a supply response
- There were several completions in the precincts that JLL tracks, which added 16,900 sqm (NLA) to the market. Notable completions include the 20,700-sqm NZD 30 million warehouses at 147 Kirkbride Road and 7 Ascot Road in Mangere, and the 14,000-sqm NZD 20 million warehouse at 27 Smales Road in East Tamaki. There are also a number of projects under construction and under planning.
- Regarding ongoing development, the Auckland South industrial precinct continues to have the strongest development pipeline out of the three precincts that JLL tracks. Projects under development here are also generally larger than those in other precincts, owing to the relative size of the South precinct and the capacity for larger lot sizes within it.
Strong demand for prime industrial warehouse space
- After increasing by approximately 3% the previous quarter, average net rents for prime and secondary industrial stayed consistent at NZD 180 per sqm and NZD 143 per sqm per annum respectively, in 2Q22. The trend of strong demand for prime industrial warehouse space persisted from 1Q22, with the continuation of low vacancy and limited new stock to come online.
- After compressing significantly in the last 10 years, and reaching an all-time low in 2021 at 3.88%, Auckland prime yields have softened in the quarter by 25 bps to 4.13% for 2Q22. Yields are forecasted to soften further by end-2023.
Outlook: A combination of factors expected to maintain demand
- The Auckland industrial market will be impacted by three major factors during the second half of 2022. Firstly, with the country’s international borders opening, offshore capital is expected to exhibit strong interest in the industrial asset class. Secondly, the growing move to e-commerce in the post-pandemic world is expected to add pressure to the demand for larger warehouse space.
- Furthermore, ongoing global supply chain constraints have increased interest for larger storage space as occupiers look to move from a ‘just-in-time’ strategy to a new ‘just-in-case’ strategy to ensure they can fulfil their customer requirements. All factors combined, coupled with land scarcity and rising construction costs, will likely add further pressure on existing industrial space.