Industrial sector facing “perfect storm”

February 26, 2020 / By  

Low vacancy, scarcity of land, rental growth, rising capital values, and skyrocketing land values – these are some of the key words getting increasingly associated with the industrial sector. Together, they have created a perfect storm for the sector, fuelled by significant macro and industry fundamentals.

Source: JLL Research and Consultancy

Looking at Auckland’s Industrial market specifically, the growth has been astounding. In December 2018, Auckland’s industrial vacancy rate hit a record low, since JLL’s records started in 1993, falling to a mere 1.5%.

Since then, vacancy rates have remained well under 2% and are forecast to remain under 3% despite developers’ efforts to add to the supply chain and keep pace with demand. However, the relentless demand for industrial property is showing no signs of abating as businesses look to expand or relocate operations from older buildings into more modern spaces, a key trait of the market.

The direct comparison of 2009 and 2019 illustrates the significant growth that the Auckland industrial market has experienced.

Source: JLL Research and Consultancy

While these figures concentrate only on prime assets, the secondary market has experienced similar growth levels despite the race for quality and modern space. In reality, many occupiers (and indeed investors) have had to settle for older spaces as new spaces are in such short supply.

In terms of capital investment performance, the industrial sector in New Zealand has picked up significantly during 2010. It represented just 13% of the aggregate total of New Zealand’s over $5 million transactions in 2005, yet contributed 34% of the country’s total transaction value in 2019.

Figure 1: New Zealand Annual Sale Transaction By Sector

Source: JLL Research and Consultancy

The increasing scale of the industrial sector has brought rise to a few record-breaking events:

  • Goodman Property Trust purchased Foodstuffs’ distribution centre (36,977sqm property on a 13ha site) for NZD$93 million. This represents the largest ever singular asset industrial transaction in New Zealand (September 2019).
  • Australia’s biggest superannuation fund AustralianSuper joined industrial property investor LOGOs to develop Wiri Logistics Estate, a 24ha development with an end value of NZD$500 million (July 2019).

As the scale continues to grow with international investors’ increasing interest in the New Zealand industrial sector, it is only a matter of time until the next record-breaking transaction. For example, Toll Intermodal and Freight Facility (36,080sqm property on a 17.16ha site) entered the market for sale and generated substantial interest. Assuming a deal is finalised, this will replace Foodstuffs’ transaction in 2018 to become the largest industrial transaction in New Zealand’s history (December 2019).

Overall, the conditions for the industrial property market in New Zealand are expected to remain strong for both prime and secondary industrial assets in core locations. While international investors increasingly compete for large-scale investments, local investors still remain heavily present in the game for all available properties. Their presence indicates that they are aware of shifting interests and the necessity towards secondary assets.

Taking a view in 2020, industrial property is unequivocally an institutional-grade real estate asset class at national, Australasian, regional, and global levels. Furthermore, there remains significantly untapped potential for the sector to continue to evolve in New Zealand.

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