With industrial precincts all over the country heating up, FTD Magazine caught up with CBRE New Zealand’s Senior Research Analyst for the Wellington Region, Iain Shaw, to get insight into why the Lower North Island, and Manawatu in particular are gaining traction as an attractive strategic location for logistics, freight and industrial occupiers.
Wellington going strong for industrial occupiers
CBRE’s latest industrial research report shows that Wellington’s industrial property market is in a strengthening position.
Shaw notes: “Not only have industrial premises in Wellington seen the worst of the market pass, but demand is stabilising and rents are finding a floor from which some growth is starting to take place, which is a positive and significant sign.
“Industrial vacancy fell by 1.2% over the twelve months to December 2013, whilst net absorption, which measures the volume of stock occupied against the volume of stock vacated over the period, was also positive during 2013, suggesting that the Wellington industrial market is showing some signs of recovery.”
Availability of sites bolsters Lower North Island region
Shaw says there is a relatively good supply of both existing industrial stock and potential development sites in the Lower North Island: “The availability of such sites, particularly around the Kelvin Grove and North East industrial areas in Palmerston North, has fuelled the growth of the logistics and distribution sector locally. For example Foodstuffs’ 37,000 sqm Roberts Line distribution centre, which opened in 2010, was purpose built to allow the inclusion of a fully automated storage and retrieval system.”
With Wellington remaining as the traditional access point to the South Island, CBRE says the Lower North Island is particularly attractive to businesses looking to base their primary operations outside of Auckland or as a strategic location for secondary and complementary freight and logistics sites.
Manawatu emerging as a key logistics region
Shaw says a number of companies have relocated their distribution hubs to Palmerston North in the past 35 years: “To name just a few, this group includes Toyota, Progressive Enterprises and Foodstuffs. Meanwhile, local companies such as Ezibuy and DKSH New Zealand (formerly Brandlines) have seen their businesses grow substantially from Palmerston North without needing to move to larger population centres.
“The distribution sector has seen growth accelerate over the past fifteen years, accounting for almost 11% of employment in the region in 2011, a 52% increase on employee numbers compared to those recorded in 2000. In comparison, the sector grew by around 5% overall in New Zealand over the same period.”
Drivers towards Palmerston North
“Palmerston North’s close proximity of the city to State Highways 1, 2 and 3, has had a major influence on the city’s development as a freight and distribution hub, with its favourable location allowing easy access to Hawkes Bay, Taranaki, Wairarapa and Wellington.”
Shaw notes the importance of strategic transport connections for industrial occupiers: “The benefits for occupiers of the Lower North Island’s transport connections and the relatively easy access to Hawkes Bay, Taranaki and the Wairarapa are numerous, and part of the drive towards the region.”
Benefits include:
- Reduced driving hours for drivers
- Improved interaction with both suppliers and customers
- Reduced operating expenditure due to the centralisation of these operations in one location.
Property criteria for the industrial sector
A CBRE study conducted in 2010 identified that cost to occupy and proximity to good, efficient road transport connections are the two most important locational criteria for industrial occupiers.
Shaw explains that road transport - mainly in the form of motorways - is well ahead of other transportation factors. He notes that proximity to ports, including inland ports, is the second highest transportation related factor:
“Occupier preference for good road transport access is reflected by the increasing amount of development observed within precincts around the northern corridor of Wellington on State Highway 1 in recent years, particularly around Porirua and Grenada North. Proposed improvements to the local road network, particularly the Transmission Gully project are likely to further the importance of precincts in the northern transport corridor going forward.”
In terms of property requirements, Shaw says stud height remains the main criteria for occupiers, whilst the number of columns and column spacing and floor loading capacity are also very important factors as occupiers look to maximise the efficient use of a building’s floor area.
As such, says Shaw, Seaview remains a popular option with potential tenants, due to the sizeable pool of stock offering large building footprints, as well as a number of potential redevelopment or expansion options.
Futureproofing and strategy are key
According to John McKenzie, CBRE Wellington’s Director of Investment Properties, it is increasingly important for distribution and supply chain operators to have a clear property strategy, with occupiers chasing good quality space in the best possible location at the lowest cost.
McKenzie says: “Whilst the majority of occupiers prefer purpose-built space in order to maximise both utilisation efficiencies and future expansion potential, many will consider relocating to existing space if it can be adapted to meet their requirements.
“In Wellington for example, Envirowaste recently relocated to premises previously occupied by Mainfreight, as it was possible to renovate and expand this building to meet their operational needs.”
Timing and strategic support are everything
One further factor that is often forgotten by industrial tenants looking to relocate is timing, says McKenzie.
“Business relocation on the scale that logistics, distribution and other industrial organisations require, can take anything up to two years to complete, something that can be severely underestimated by many tenants, hindering their growth and success, or influencing poor decision making, which can have serious repercussions further down the line.
“Occupiers benefit from a wide visibility of the market, both in terms of what is currently available as well as options that may be coming to market in future. There are plenty of opportunities out there so plan smartly and make the most of the exciting prospects at hand.”
About CBRE
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
