Dire shortage of Shore industrial premises

5:53 PM Tuesday July 24, 2018 Colin Taylor

The latest Bayleys Research industrial survey shows the Albany Basin’s vacancy rate sitting at just 2.1 per cent. Photo / Supplied

Very low vacancy rates for North Shore industrial properties are frustrating tenant companies in their efforts to grow bigger, with some being forced to move further out of Auckland to secure suitable rented premises. 

“Not only are tenants competing with each other, but they’re also up against businesses wanting to buy properties rather than lease them,” says Laurie Burt of Bayleys North Shore. 

“Companies are buying to protect themselves from increasing rental levels and making the most of low interest rates to borrow and purchase rather than lease,” he says. 

Burt, and fellow North Shore industrial team leader, Matt Mimmack, say the trend is not a new phenomenon but it’s one that’s been gathering momentum over the past few years.

“There’s also plenty of investors looking at vacant or semi vacant buildings because of a shortage of investment properties with long leases being offered for sale. 

“It’s now reached the point where some industrial property owners aren’t bothering to re-let when a tenant moves out. Instead they’re putting their properties up for sale because they can get more for them vacant than occupied.”

Burt says all of these factors make it a very challenging market for North Shore industrial tenants – to the point where in some instances they’ve been offering more than asking rents, particularly for smaller properties, in order to lease suitable premises.

“In worst case scenarios, and sadly for the Shore, they’re having to move elsewhere to find what they are looking for, generally heading further north or out west where there’s more industrial land and new premises.”

The latest Auckland industrial accommodation survey conducted by Bayleys Research shows the Albany Basin vacancy rate sitting at just 2.1 per cent, below the overall total vacancy rate of 2.8 per cent for the region’s largest industrial precincts.

Among the three Albany precincts measured in the Bayleys Research survey, Mairangi Bay had the lowest vacancy rate at 1.3 per cent, albeit this was up from 0.6 per cent in 2017. North Harbour and Rosedale showed little change, registering two per cent and 2.5 per cent respectively.

The North Shore’s other established industrial precinct, Wairau Valley, is experiencing similar trends. Vacancy remains at negligible levels with strong tenant and owner-occupier demand, 
particularly for smaller properties in the 300 to 600sq m size range.

Compounding the problem on the Shore is the fact that there is little land left which is available for new industrial development, says Mimmack. He says new premises that are being developed on small pockets of suitably zoned land are quickly being snapped up by investors and owner-occupiers. 

A case in point has been Kea Property Group’s development of a range of smaller industrial units off Corinthian Drive in the Orchard Business Park in Albany. Mimmack says these all sold out well ahead of completion, many of them through Bayleys North Shore Commercial. 

“Kea is a longstanding, experienced developer so investors know they will be producing a good quality, leasable product and are therefore prepared to buy these units vacant off the plans,” says Mimmack. “It means, however, that tenants don’t get a look in at these new, modern premises unless they have a well-established contact with a real estate agent who can link them up with a purchaser.”

As a consequence of development being hindered by a shortage of, and the increased cost of land, there has been a migration of construction activity – and North Shore businesses – to new industrial precincts further west such as Hobsonville, Westgate and north in Silverdale. 

“There is a good range of new premises being developed in these precincts which we can assist tenants, owner occupiers and investors to gain access to,” says Mimmack. “But again there is plenty of competition for these properties so interested parties need to get in early in the planning and development phase of these projects.” 

While the tight supply of industrial premises on the North Shore has been tough on tenants it’s had a positive spin-off for landlords, says Burt.

“Unsurprisingly, with intense demand outstripping supply, rentals are increasing. New premises are setting new benchmark levels and, as a consequence, dragging general rental levels higher as well,” says Burt.

“This upward movement in rentals combined with the firming of yields that has been evident in recent years has resulted in in industrial property values rising, in some cases quite considerably.”