Published 2 June 2010
Industrial property vacancy rose in Auckland to 6.7% in February but the rate of increase is slowing, Colliers International research & consulting director Alan McMahon said yesterday.
Vacancy was at 6.4% last August, up from 4.8% in February 2009. In some precincts, such as Avondale, vacancy had fallen.
Mr McMahon said private investors continued to dominate the industrial property market, with Property For Industry Ltd the rare listed entity joining them. “Most of the listed vehicles, however, struggle to acquire at yields which will be accretive for their shareholders, such is the discount to asset backing at which their shares are trading.”
Mr McMahon said Colliers’ 12-month forecasts for prime industrial rents in Auckland, Wellington & Christchurch “for the first time in 18 months, have no minus signs. We expect stable rents in Wellington & Christchurch and a modest increase in Auckland.
“Unfortunately the same stability is not forecast for the secondary market, where hundreds of smaller, older & difficult-to-re-use properties remain vacant, with no immediate prospect of relief by way of increasing demand.”
While recent economic data was reasonably positive, Mr McMahon said businesses were still struggling: “The question is how long it will take for that smattering of positive signs to translate into real expansion of the market, and with it some absorption of the large number of vacant buildings.”
Across the 3 industrial markets, Colliers recorded close to 800,000m² of empty sheds in its last survey: “Vacancy in Auckland is higher than it has been for almost 10 years. Overall, the trend is still for businesses to downsize, and although there have been a few high-profile commitments to new buildings, they are not enough to stem the flow of increasing vacancy.
“In secondary areas, face rents continue to decline and, as incentives increase, net effective rents are declining faster.”
Stable capitalisation rates reflected investors’ views that medium-term growth prospects were reasonably good, particularly in prime areas. However, in areas where rents & capital value were falling, land values still had to fall to make redevelopment viable.
Mr McMahon said settled industrial property sales in the main centre went close to $600 million in 2009, up 10.5% on the previous year. The most recent bright indicator was the BNZ Capital-Business NZ index of manufacturing performance, which showed manufacturing activity increasing in February, March and again in April.
North Shore rents firmed slightly for prime warehouse space to rent at $100-125/m². Typical prime warehouse rents in East Tamaki ranged from $95-110/m², Mt Wellington & Penrose $100-115/m².
In Manukau, only 4.6ha of industrial land was taken up in the year to February, and 3.7ha of that was at the airport. That’s well below the average takeup of 38.8ha/year over the past 5 years. Mr McMahon said industrial building consent numbers were reasonably strongly correlated with land takeup, so the area of industrial buildings consented should fall.
In the Wairau Valley, brownfield development continued as older industrial sites transitioned to showroom or retail use. Design-build activity in Mairangi Bay was slow due to lack of both demand & developable land, and there was more evidence of sub-leasing in that market.
Overall, he said, “rents & incentives are expected to remain at or about their current levels over the next 6-12 months. Prime yields have tightened a fraction this year but are generally expected to remain static, while secondary yields my ease slightly. Capital values in the secondary market may therefore decline on the back of static rent & slightly easing yields.”
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Attribution: Colliers market indicators report & presentation, story written by Bob Dey for the Bob Dey Property Report.