APPD Market Report Article
AucklandNovember 29, 2022
Gavin Read, Head of Research, New Zealand
Robust demand from both manufacturing and logistic occupiers
- Manukau continued to enjoy notable demand among larger occupiers and those looking to occupy design-build premises. Despite having the most active pipeline and holding the most stock (5.35 million sqm), vacancy remained structurally low.
- The North Shore remained the most tightly held, as a result of limited supply and having comparatively limited development activity due to zoning constraints and a lack of greenfield land. For Auckland City, the central location of this precinct continued to be attractive to certain occupiers. Leasing activity remained high in Penrose and development activity remained high in Mount Wellington.
Despite land shortages, a strong development pipeline exists
- With regard to ongoing development, the Manukau industrial precinct continued to have the most active development pipeline out of the three precincts. The development by Logos Property, at 11 Puaki Drive, Wiri, had already delivered and leased a number of warehouses, with more to come.
- Other notable developments in the pipeline for this precinct, located in Wiri, included a 51,700 sqm, NZD 76.5 million, Countdown warehouse extension and a 29,000 sqm, NZD 28 million, GPC Distribution Warehouse. Despite the strong development pipeline, cost of construction remains a constraint for future developments.
Rental growth on the rise
- After increasing by 3.0% during the first half of 2022, average net rents for prime industrial properties rose by another 3.7% across all precincts for 3Q22, at NZD 186 per sqm per annum.
- Yields have been compressing significantly in the last ten years, and reached an all-time low of 3.88% in 2021. In the second quarter of 2022, Auckland prime net yields started to soften to 4.12%, and further softened by 38 bps to 4.50% in the quarter. This trend is expected to continue into 2023.
Outlook: Low vacancy continues to characterise the industrial market
- Production has been constrained by acute labour shortages, heightened by seasonal and COVID-19-related illnesses. In these circumstances, spending and investment continue to outstrip supply capacity and wage pressures. All of these factors, together with the scarcity of development land and rising construction costs, should provide support for the industrial market.
- However, competition is expected from the Hamilton industrial market. The final section of the Waikato Expressway opened during 3Q22, reducing travel time for outbound Auckland traffic to Ruakura and Tamahere. As occupiers start looking towards Hamilton, this may release some pressure in the Auckland industrial market.