COMMERCIAL REAL ESTATE with Colliers of North Shore
Industrial property market shows positive outlook
The industrial sector continues to lead the commercial property market, according to Colliers International’s latest industrial market report.
The sector recorded a total return of 9.1% for the year ending June 2011 (Investment Property Databank/Property Council of New Zealand). East Tamaki in Auckland recorded the highest precinct total return of 10.5%.
The results of Colliers’ latest real estate confidence survey confirm that industrial investors feel the most optimistic about the year ahead. Auckland industrial investor confidence is at 41%, up from 5% a year ago.
Transaction activity
Sales volumes are also up, the industrial report reveals. $526 million worth of industrial property was transacted in Auckland over 2010, 12% more than 2009’s total. To July this year, approximately $132 million of industrial property was transacted. (The totals only include sales of individual properties at $2 million or more.)
The market is awash with private investment funds keen to increase their industrial property holdings. However, to attract a buyer, an investment property still needs to offer the key fundamentals of a prime location, a strong tenant covenant and a long-term lease in place.
Industrial land values have climbed over the past two years and now sit at $343 per square metre on average for the Auckland region. Land on the North Shore is still the most expensive to acquire, particularly in Wairau Valley and Mairangi Bay, where prices now range between $400 and $500 per square metre. The cheapest land can be found in Manukau/Wiri for around $275 a square metre. The availability of land for sale in South Auckland remains low, although on the other hand there are fewer buyers.
Investment yields are also tightening, according to the report. Prime yields now sit between 7.15% and 8.5% across the precincts, while secondary yields are between 8.0% and 9.5%. Yields are expected to remain at this new level over the next 12 months.
Vacancy levels
Data collected from Property IQ – the data provision arm of Quotable Value – show that over 1274 hectares of industrial zoned land was vacant in the greater Auckland region this year. Our analysis concludes that around 621 hectares is actually available for development. This figure is 27% lower than that of previous year. Close to 65% of that developable land is located in Manukau and Waitakere. North Shore vacancy is very tight, with only 24.5 hectares of vacant land available.
There is virtually no uncommitted supply in the pipeline, so investors queuing up for brand new industrial buildings will have to settle for existing stock in many cases.
Overall vacancy remains relatively stable, falling only marginally to 5.1% (which equates to 545,000m²) in August from 5.3% six months ago. In comparison to the last survey six months ago, over all 11 industrial precincts measured, vacancy dropped in five and rose in six. In the south, vacancy in the Airport Corridor (the precinct formerly known as Airport Oaks/Mangere) increased from 6.8% to 9.6%. On the North Shore, North Harbour vacancy was down 1.8% and Mairangi Bay vacancy was up 1.7%. In the west, vacancy in New Lynn rose from 6.2% to 8.2%. Henderson’s secondary vacancy rate of 13.3% contrasts sharply with 3.3% prime vacancy. In the east, vacancy rates in Mt Wellington and Penrose fell by 0.3% and 1.0% respectively to 5.7% and 4.6%.
Leasing activity continues, particularly in the under 2000m² market. Net face rents remain static in the majority of the precincts but incentives have dropped. Warehouse rents are now between $98 a square metre to $108 a square metre across Auckland industrial precincts.
Andrew Hiskens: andrew.hiskens@colliers.co.nz www.colliers.co.nz
