Industrial buyers eye high-profile sites
There is strong interest in properties such as 2 Station Road, Penrose that Colliers International is marketing. Photo / Supplied
Investor confidence in the future of the industrial sector is as solid as ever, and this is leading to purchasers looking for high profile sites with development opportunity, according to latest results from Colliers International.
The latest quarterly investor confidence survey that asks respondents for their 12-month outlook on commercial and industrial property expectations across the country, showed that in Auckland, Wellington and Christchurch industrial was the top pick.
Auckland was the standout with a net positive (optimists minus pessimists) 70 per cent, according to the research.
Supporting the survey sentiment from the front-line, Colliers Industrial Director Hamish West notes that property purchasing has been exceptionally strong in 2019, fuelled by a positive perfect storm of events in Auckland’s industrial sector over a number of years.
“Limited availability of property for sale or lease and a balanced supply outlook are fundamental to the positive purchasing activity, and there are supply-side response constraints insulating the sector for the long-term,” says West.
“Auckland’s industrial vacancy rate remains stubbornly low at 1.5 per cent across almost 12 million square metres of space.
There is also a development pipeline of less than 2 per cent of existing stock.
“Land supply is tightly held in Auckland and realisable opportunities to unlock new developments remain especially sought after. When options become available, interest is high, and it is not just local purchasers.
“A prime example of this is the recent acquisition of an additional 14ha of industrial land in Wiri, Manukau, that was purchased by an offshore entity,” says West.
AustralianSuper is looking to develop a $500m industrial estate with Asia Pacific logistics specialist LOGOS, which originally purchased 10ha of land at the site.
“Given the appetite for development and the positive outlook, we are now recording a rise in the number of vacant industrial sites reaching land values well above the $600 per sq m mark.
“For high profile existing sites, this goes even higher,” says West.
Latest Colliers International research shows average prime industrial vacant land values were $500/sq m just a few years ago.
“It easy to see why the investment fundamentals stack up and investors are actively scouring the market for opportunities, both for existing and development stock,” says West.
Industrial Associate Director Ben Cockram says that the long-term defensible characteristics of the sector and the total returns that purchasers are enjoying from rental uplifts and yield firming are also why investor confidence remains high.
“Auckland experienced prime industrial office and warehouse rental growth of 5 per cent over the past year and the low interest rate environment has enabled purchasers to bid strongly and confidently, pushing average prime yields to new records.”
Supporting this positive activity is the latest research from global data provider MSCI that highlights the industrial sector was the best performing sector for total returns across most cities globally.
“New Zealand was no exception to the global trend. The total investment return reached 13.5 per cent for the March 2019 quarter, outperforming all other sectors,” says Cockram.
Industrial Director Paul Higgins says that many key stakeholders involved in the industrial sector have evolved significantly in recent years given the exposure to global markets and the growth enabled by the Auckland Unitary Plan.
“Buyers are cognisant of their landscape and how best to react to the new environment,” says Higgins. “Many are looking at change of use, especially high profile industrial sites.”
An example is 60 Allens Rd, East Tamaki, which Higgins and colleague Josh Franklin sold last year to a mini storage business. The low site coverage premises on a high-profile site sold for $830 per sqm.
Higgins notes the site next door that he sold, 62 Allens Rd, comprising 7500sq m with older buildings, sold to a car retailer/compliance company for $777/sq m.
And there are no signs of this slowing down with strong enquiry for industrial property. West says the superbly positioned 2 Station Rd, Penrose, that Colliers International is currently marketing is one such example.
Latest Colliers research shows vacancy rates in the area sit at around 1 per cent and demand from tenants and investors outstrips supply.