A sharp drop in leasing of new top-grade industrial property in Auckland represents a short-term timing issue, not a cooling market, CBRE Research senior director Zoltan Moricz says in the consultancy’s latest market outlook.
“Of the 100,000m² of new supply completed in the first half, about a quarter was in 3 speculative developments that were all available for lease at the end of June.”
Mr Moricz said overall vacancy tightened slightly, from an already low 1.7% to 1.6%.
“The vacancy decline would have been stronger had all newly built prime space been taken up. However, the timing of the latest new speculative supply meant that some of this was not taken up at the time of our survey, which pushed up prime vacancy as at June.
“The strong underlying demand for industrial space is manifested in 2 of the recently completed speculative developments coming under leasing contract since our June survey cut-off.”
Mr Moricz said that, at first glance, industrial headline figures for the first 6 months of 2017 suggested a cooling Auckland industrial property market: “After a couple of years of continuous growth, overall demand for space decreased by 22% compared to the second half of last year, and prime quality vacancy increased from 1% in December to 1.6% at the end of June. But a closer look at the details reveals there is no significant slowdown in occupier demand, and the above changes are essentially caused by the timing & composition of the latest new supply.
“Continuously strong occupier demand is most evident from the amount of secondary grade & pre-existing prime grade space that has been taken up in the first half of 2017.
“As the chart illustrates, leasing activity in these 2 categories was slightly more in the last 6 months than in either the first or second half of last year. Moreover, there were some sizeable secondary grade premises taken up by the market, with the average size of the 10 largest leases being about 8000m².
“Active occupiers in this segment of the market include large manufacturers such as Lion & Cottonsoft, and major retail businesses like Bunnings & My Food Bag. The pre-existing grade A segment was also dominated by the manufacturing sector (Fisher & Paykel, Visy) as well as logistics service providers (PFL Cargo, NZ Post), with the manufacturing sector accounting for 32% of overall activity and logistics 28%.”
Mr Moricz said the chart also made it clear that it was the volume of relocations & expansions into newly completed buildings where the first half of 2017 lagged behind previous half-year periods.
He said overall new supply in 2017 would be less than in 2016, “which is not entirely surprising given the record amount of new completions last year, including one of the largest industrial buildings in the Auckland market (Sistema Plastics Ltd’s 52,000m² facility near Auckland Airport)”.
CBRE’s forecasts indicate industrial supply should remain at about 200,000m²/year for a few years.
Attribution: Agency release.