Life in the fast lane

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Industrial leasing markets across the country are incredibly tight and tenants need to move quickly to secure space.

New Zealand’s industrial leasing sector is being squeezed from all angles with unprecedented demand for space, historically low vacancy rates, shortage of new stock, and pandemic-related business fundamentals all contributing to significant pressure points.

Space is at a premium with businesses right across the industrial spectrum actively looking for premises and competing for the limited opportunities that become available.

In Auckland and Wellington, leasing often occurs prior to the property becoming physically vacant and this highlights the benefits of actively engaging with Bayleys’ leasing team to get the jump on opportunities.

“Our teams across the country have ears to the ground, working closely with landlords and keeping abreast of development pipelines,” says Scott Campbell, Bayleys’ National Director of Industrial.

“Businesses that are looking to scale up, downsize, change location or upgrade in terms of quality are approaching us directly in the hope of finding premises that will enable them to streamline and optimise their operations.”

“Locally in Tauranga we are seeing strong demand from industrial tenants who are looking to grow or establishing additional hubs in the region with a strong desire to be located near the Port of Tauranga and key arterial routes,” says Bayleys Commercial Tauranga Sales Manager Mark Walton.

“Vacancies for industrial buildings in Tauranga are at record lows with sub-1% vacancy and vacant industrial land in the area particularly scarce, so we are unlikely to see much additional supply come to market in the Western Bay of Plenty until the new Rangiuru Business Park comes on stream.

“For any tenants that have requirements over the next few years we do recommend planning early and working with your Commercial Agent to review your requirements and consider options,” Walton advises.

There are multiple factors contributing to the industrial market’s momentum. Demand for warehousing driven by growth in ecommerce is the main one, while the step change from “just-in-time” to “just-in-case” logistics strategies behind the need to hold greater levels of inventory is driving requirements for properties with scale.

Campbell says in Auckland, where vacancy rates are at all-time low averaging 1.6-percent across precincts, the situation is becoming acute.

“It’s so dire, that there are emerging examples of landlords running rental tenders rather than traditional negotiated processes to achieve the best leasing outcomes from vacant spaces.

“This requires tenants to minimise any conditionality and be prepared to compete by paying higher rents – it’s fast-moving game.”

The new pipeline of development is not keeping pace with demand in Auckland and the developments that are underway usually have tenant pre-commitments.

“The pandemic situation meant that we’ve lost 10 to 12 months or so of construction workflow and there simply is not enough new stock coming on-stream to keep up with business demand.

“Council must address the situation through rezoning or opening up new land opportunities, as the industrial development sector is still confidently forging ahead.”

Campbell says when New Zealand’s borders are fully opened, the supply-demand equation will be squeezed even further with the battle for space set to become even more competitive.

The industrial market in Wellington is one of the tightest in the country with overall sub-2-percent vacancy and virtually nothing available for lease in the most sought-after precincts like Seaview and Gracefield.

Fraser Press, Director with Bayleys Wellington Commercial says the main pinch is on high quality distribution warehousing, with tenants seeking seismically-sound and fit-for-purpose premises.

“Those larger scale properties are like hens’ teeth and when they do become available, they’re snapped up with long term leases quickly locked in. For SMEs, 50sqm to 70sqm purpose-built units within several new innovative industrial business parks around the region have quickly sold down off plans creating upwards pressure on rental rates when – or if – they make it onto the leasing market.”

Geographical constraints mean there’s a limited pipeline of future industrial development land in the wider region, with Press saying new opportunities are likely to be well north of Wellington city.

“Land to the north tends to have lower seismic risk perceptions, and Transmission Gully and new regional expressway initiatives have created movement efficiencies prompting many distribution and logistics-related businesses to relocate.

“There’s growing interest being shown in the Kāpiti Coast, and the Horowhenua towns of Ōtaki and Levin.”

Press and Campbell say occupiers need to have a clear plan around business premises now and for the future.

  • Plan early
  • Regularly review the level of warehousing required by your business, and always look ahead
  • Accept that tight market conditions do not allow for immediate leasing of additional warehousing on a whim
  • Get advice from your Bayleys agent when undertaking budget planning as rental rates are moving fast so old rules of thumb or CPI indexing may result in under-funded budgets creating holdups within the leasing process.

Source: www.bayleys.co.nz/workplace/articles/insights

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