Prime rents increase by 8.3% during 2023

• Average net Prime and Secondary rents are unchanged for the first time since June 2022. However, y-o-y increases in average net Prime and Secondary rents were 8.3% and 10.4%, respectively. Precinct-wise, net Prime rents per annum stand at NZD 222 per sqm for the City, NZD 218 per sqm for Manukau and NZD 202 per sqm for the North Shore.
• Even with some early signs of stabilisation in construction costs, Prime rents are still expected to rise. This is especially true for warehouses with good credentials near arterial routes, as large-scale occupiers start to move from Secondary warehouses to better-quality premises.

Vacancy increases minimally across Auckland

• Overall vacancy increased by 100 bps to 2.4% for 4Q23. Precinct-wise, the vacancy rate stands at 4.4% (+250 bps) for the City, 1.0% (+70 bps) for North Shore and Manukau is unchanged at 1.0%. For the City, the increase in the vacancy rate is due to a few large-size vacancies on Monahan Road and Mt Wellington Highway.
• Net absorption was negative for the last six months, although positive by 137,400 sqm over the last 12 months. Precinct-wise, net absorption was the highest for Manukau, at 239,800 sqm. Tenants were still seen to compete strongly for quality space, with demand particularly robust for well-located and modern facilities, as occupiers consider long-term efficiency and sustainability strategies.

Sales over NZD 146.72 million during the quarter

• Average net Prime and Secondary yields did not move in the quarter, as evidenced by transactions staying within the range of the previous quarter’s figures. Average net Prime and Secondary yields are forecast to soften to 5.58% (+20 bps) and 6.63% (+23 bps), respectively, by December 2025.
• There was over NZD 146.72 million worth of transactions for the Auckland industrial market in 4Q23, with NZD 116.80 million in and around Manukau. A significant transaction was the sale of 10C Stonedon Drive, East Tamaki, for NZD 20.90 million. Another was the unconditional sale of 10 Transport Place, also in East Tamaki, for NZD 38.00 million.

Outlook: Demand underpinned by modern construction in strategic locations

• For a new industrial property, investor requirements include modern construction, preferably with sustainability components, long-term leases with fixed growth (with the addition of defined market review periods) in known Prime locations in a growing logistics sector, and quality tenants.
• Another trend for industrial properties is the decrease in office area while the warehouse area increases. Historically, industrial properties were 20% office and 80% warehouse. Now, a typical industrial property has a large warehouse and yard, a canopy portion, a reasonable driveway, allocated parking spots, and a reduced office space which can be as small as 3% of the property.