Another property shortage hits Wellington

Another property shortage hits Wellington

The focus on the lack of residential accommodation to rent in Wellington has overshadowed another sector facing a shortage crisis.

The latest research undertaken by Colliers International shows a Wellington industrial vacancy rate of just 1.5 per cent, or just under 39,000sq m of space. This is the lowest result recorded since the annual survey was commenced a decade ago and down further from the already critical shortage seen in late 2017 of 2.1 per cent.

Jeremy Simpson, Director of Valuation and Advisory Services in Wellington notes that the vacancy rate has now decreased for the sixth consecutive year.

“Business owners looking for industrial space to lease in Wellington will find the shortage will severely restrict their options,” he says.

“This also means 2019 will be another tough year for industrial tenants, particularly if they are facing rent reviews or lease expiries.

“Industrial rents have been increasing strongly in recent years but we expect that on the back of these latest vacancy results rents will move to a new high in 2019. Rentals have come off a low base that were below sustainable long-term levels required to trigger new build developments.

“Compounding the issue is that the Wellington industrial sector is going through a really positive period and expansion is on the cards for many businesses. But if there is nowhere to expand to, this will place significant pressure on the sector and the region’s growth.”

The Colliers survey showed that in the Hutt Valley, which accounts for approximately 70 per cent of the Wellington industrial stock, with around 1.75 million square metres of factory and warehouse space, there is an overall vacancy rate of only 1.6 per cent.

The region's largest industrial precinct, Seaview/Gracefield, has an unprecedented vacancy rate of less than 1 per cent. In 2012 it was surveyed at 12.6 per cent.

“The very low vacancy rate faced in Wellington is a direct result of strong business confidence in the industrial and manufacturing sectors rather than also the result of loss of space to bulk retail conversions, demolitions or acquisition of property for public works as has been the case in previous years,” says Simpson.

“The Wellington industrial sector is slowly growing through new development, but it is not keeping pace with demand.

“Another factor hindering new development is the well documented rise in construction costs in recent times. Couple this with rising land prices and new builds are simply unaffordable for most businesses.” Page 2 of 3

Strong uptake of vacant industrial land and new build activity is increasing in precincts such as Porirua and Upper Hutt where land values are lower than more centrally located precincts.

“There has been more vacant industrial land sold in Upper Hutt in the last 12 months than in the last three years put together,” Simpson says.

“New builds are still predominantly owner occupiers although there have been several design builds over the last 12 months.

“Stronger enquiry for design builds is typically coming from corporates in search of quality and earthquake compliant and resilient premises.”

Major infrastructure development has also been a significant catalyst to the upswing in demand.

“High anticipation of the completion of Transmission Gully – already benefiting most of Wellington’s industrial precincts – seems to be creating a cyclical boom that shows no signs of slowing,” says Simpson.

Chris Dibble, Director of Research and Communications at Colliers, notes that overall, confidence in the Wellington industrial market has shown a very positive trend, especially over the past five years.

“The Colliers International investor confidence survey showed a net positive (optimists minus pessimists) 47 per cent of respondents expected investment decisions to improve in Wellington’s industrial sector as a result of low vacancy rates, rising rents and firming yields.

“This was up from a net positive 32 per cent recorded a year ago in the December 2017 confidence survey.

“Investor confidence in the sector is now the highest on record since the proprietary survey started in late 2008.”

The optimism in the future outlook for the industrial sector is also mirrored in Auckland and Christchurch.

Auckland industrial investor confidence is at a net positive 59 per cent and Christchurch is at a net positive 32 per cent.

“Such high levels of investor enthusiasm for the sector are hardly surprising given the ‘rockstar economy’ that New Zealand has experienced in the past five years, which has seen industrial at the forefront of many of the growth opportunities,” Dibble says.

“While economic growth is forecast to reduce slightly over coming years, strong demand, limited supply and low interest rates will continue to support the buoyant owner-occupier and investor market over the next few years.”

ENDS

Note regarding the survey:

Colliers Research completes a vacancy survey of the eleven main industrial precincts in Wellington. Covering some 2.5 million square metres of industrial space, this is one of the most comprehensive surveys available with every property physically inspected. Surveyed precincts include Seaview/Gracefield, Petone, Alicetown, Grenada North, Naenae, Wingate, Ngauranga, Porirua, Upper Hutt, Kilbirnie/Rongotai and Miramar.

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