APPD Market Report Article
AucklandFebruary 28, 2023
Gavin Read, Head of Research, New Zealand
Robust demand from both manufacturing and logistic occupiers
- Robust demand persists from both manufacturing and logistic occupiers in the Auckland industrial market as demand continues to outpace supply. Historically over the last ten years, vacancy has continued to decline, with 4Q22 continuing this trend as overall vacancy fell a further 10 bps from 0.7% to 0.6%.
- The vacancy rate decreased in all three precincts in Auckland. The North Shore has around 17,000 sqm of available space at a vacancy rate of 0.8%, Manukau with around 24,000 sqm of available space at a vacancy rate of 0.4%, and Auckland City with around 33,000 sqm of available space at a vacancy rate of 0.7%.
Net leasing area of about 101,600 sqm enters the market
- Strong market performance continued to motivate a supply response. Notable completions include a 20,546 sqm warehouse for Sorted Logistics, built by Calder Stewart at 72 Tidal Road in Mangere, a combination of warehouses of different sizes totalling 35,810 sqm at 11 Puaki Drive in Wiri, and three warehouses totalling 7,450 sqm, called Highbrook Riverside at 28 Business Parade North in East Tamaki.
- Despite land shortages, there is a significant pipeline of new stock to come to market over the next three years. The Manukau precinct is expected to record the largest increase in leasing area (328,000 sqm) compared to the City (51,000 sqm) and North Shore (about 70,000 sqm) precincts.
Transaction activity expected to ramp up in 2023
- After compressing significantly in the last ten years, and reaching an all-time low of 3.88% in 2021, Auckland prime net yields started to soften earlier in 2022. In the quarter, yields softened further by 38 bps to 4.88%, with an expectation to soften further during 2023.
- There were four notable transactions reported in 4Q22. One was the sale of 307-311 & 319 Church Street, Penrose, a 2.7-ha land holding, underpinned by a 14-year triple net lease, which was acquired by Wyborn Capital. The second was the sale of 37 Hannigan Drive in St Johns for NZD 7.14 million. The other two were 64 Trig Road in Whenuapai and 13-15 Pukemiro Street in Onehunga.
Outlook: Low vacancy continues to push rents upwards
- Despite rising rents, tenants are paying a premium for supply chain efficiencies. Warehouse locations are more important than ever. Many development feasibilities struggle to stack up with higher land prices, increased construction costs, higher wages, and the rising cost of borrowing. As a result, investors and developers are likely to become more selective.
- Being the tenth most transparent country in JLL’s Global Real Estate Property Index for property, this supports the view of increased offshore capital looking for a home in New Zealand, and the Auckland industrial market is one of those in which a high level of overseas investment is expected during the next few years.