Industrial Property Offers A Less-complicated Path To Investment

With the entry thresholds, compliance requirements and tax implications of owning residential investment property creating tangible barriers to the sector, leading agency Bayleys is noting an uptick in enquiry from prospective investors looking to invest in commercial and industrial property for the first time.

232 Ellis Street, Frankton development

The industrial segment of the market in Hamilton is attracting particular attention, with entry-level units within strategically-located and planned business parks selling down off the plans in record time and often to investors who have previously not competed in this sector.

Jordan Metcalfe and Rebecca Bruce of Bayleys Waikato are keen to help educate first-time entrants to the industrial property sector about the benefits it offers against other asset classes and hope a younger demographic of investors will consider industrial property as an investment vehicle.

“There have been a number of recent announcements that have taken the gloss off residential property investments and for some, the compliance hurdles, tax clawbacks and changes to the bright line test have tipped the scales too far,” said Metcalfe.

“Rebecca and I are both representative of a generation that may view commercial property as an unknown in terms of the jargon used, the previously grittier nature of industrial offerings and the fact that residential property with its ‘safe as houses’ philosophy just seemed more appealing.

“We are finding when we talk to people about the industrial market in Hamilton, they’re very surprised to learn that they could get a foothold with a unit for as little as $320,000 and they certainly won’t find that easily in any other sector now.”

Metcalfe said the industrial property market also thrives on the ‘location, location, location’ mantra that has traditionally underpinned the residential sector, and new developments within the proven established precincts like Te Rapa and Frankton will always be in demand because of the underlying credentials.

“Arterial access and a central location are the prime considerations for occupiers of industrial units with typical trade-based service tenants needing to get out to jobs and back to base easily and quickly,” he said.

“Location trumps everything – and as these well-tested and tightly-held areas have shown, there is strong demand from tenants wishing to lease property within the established hubs.

“Add in the core fundamentals of a quality building, long lease length, favourable lease terms, and a quality tenant and investors can expect good income from the property, as well as long-term capital gain – without a bright line test to contend with.”

Industrial property as an asset class has become more gentrified in recent years with new developments incorporating quality design, finishes and landscaping that elevate them from the grimy sheds of old.

Rebecca Bruce said there is still an element of mystery surrounding industrial property for younger investors and those who previously dabbled in the residential investment sector.

She said with interest rates still at historic lows, the industrial market offers real opportunity.

“It would be easy to feel bamboozled by the terminology and acronyms used in the sector, but we’re here to demystify the language.

“Peel back the layers and industrial investment is actually very straightforward.

“There are many ways to structure a commercial property mortgage and still ways to leverage against equity in the family home, for example.

“Tenant agreements and contracts will look different to residential ones, and while an owner may not find the same frenzied demand being seen for residential property, once an industrial tenant is secured, the lease terms tend to be relatively long and fitouts and most outgoings become the tenant’s responsibility.”

The recent sell-down of 19 high-specification industrial units in Ellis Street, within the prime Frankton precinct, are held up as an example of the sort of investment opportunity that is resonating with new participants in the sector.

“This is a good-looking, well-planned and strategically-located development that just hit the right note in the market,” said Metcalfe.

“General rule of thumb when new investors are looking to buy off the plans is do your homework, look for developers with a steady track record, and steer away from those projects that require a certain level of pre-sales to determine a go-ahead.

“Industrial property has led the way for many years now as the best-performing asset class within the commercial arena, and with Hamilton firmly anchored in the economic Golden Triangle of New Zealand – new investors to the sector can take confidence from the growth being seen in the Waikato region.”

• 232 Ellis Street, Frankton development

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