Auckland, 6 July 2014 - Latest Auckland industrial property sector research from CBRE New Zealand shows that manufacturing companies are active in the market, and while they are taking up less space, it is of a higher quality grade than previously seen driven by stringent quality standards.
Manufacturing most active sector with an appetite for quality space
Gergely Gaspardy, Research Manager, CBRE New Zealand, says out of all sectors, manufacturing and logistics companies in the Auckland region are the most active sectors with the first and second highest take up of industrial space respectively, with the retail sector the third most active.
Gaspardy says: “Of note is the fact that 53% of space taken up by the manufacturing sector is Grade A, premium quality space. The total take up of Grade B and Grade C/D space in 2013 adds up to 47%, so the sector has clear demand for relatively new, high spec, good quality property across Auckland.”
Grade A properties in demand
CBRE New Zealand notes that the two largest take-ups in the Auckland manufacturing sector in 2013 were both in Wiri, and both Grade A space. Gaspardy explains: “Frucor’s move saw the company take up 17,300sqm of premium space, and ABC Tissue Products NZ took up 10,500sqm of similar quality space in the same area.
“East Tamaki also saw a number of large Grade A moves, with an overall size of almost 20,000sqm. The popularity of East Tamaki is also due to the fact that two of the largest manufacturing companies (Lion and Fisher & Paykel) both have their main centres there.
Gaspardy adds that of the ten largest take ups of space last year, eight of those were Grade A properties: “Through our research and from market anecdotes, we know that the quality of property is of less importance to some sectors. For example, the latest numbers for the wholesaling industry’s activity show that around two thirds of the space those companies took up was secondary grade, but the export and manufacturing sector have far more exacting standards when it comes to their property requirements.”
Tim Boyle, Associate Director for CBRE’s South Auckland office specialises in industrial, logistics and investment services, and says the demand for higher grade, premium facilities is in large part due to the stringent standards required for food products: “Consider the standard of space required for dairy manufacturing or processing. Dairy is a large occupier of premium warehouse space in and around Auckland, and with growing concern for food safety, expect to see an increase in demand for high spec facilities, particularly for those businesses in the competitive export game.”
Boyle says that efficiency is also a driver of the move to higher quality property: “Exporters and manufacturers are looking for efficient cubic capacity, and also for the latest and most effective racking technology. Those features are more often than not found in Grade A, premium facilities.
Strong demand for space under 5,000sqm
Gaspardy says that there are presently 1,850 manufacturing companies occupying industrial space in Auckland, with total warehouse occupancy of 4.8 million sqm. Manufacturing companies’ properties make up 43% of all industrial stock in Auckland, with logistics and retail both taking up 13% of stock.
CBRE makes note of the size requirements of the industry, with Gaspardy commenting: “Half of all the industrial premises occupied by manufacturing companies measure under 5,000sqm, with just 203 of the 1,850 manufacturing firms occupying space over 5,000sqm.
Gaspardy says location-wise, East Tamaki is the most popular area with Auckland’s manufacturing occupiers: “This is largely because of East Tamaki’s attractive logistics connections, particularly to the Airport. However, Penrose, Mount Wellington and Wiri are also popular locations.”
Development pipeline is filling up - but largely precommitted
CBRE’s market research highlighted that there is a continuously high level of new supply of industrial property in Auckland. Gaspardy explains: “So far in 2014, there is 204,400sqm of industrial space under development, spread across 29 sites in Auckland. East Tamaki, the Airport and Mount Wellington have the highest levels of development.”
However, Boyle says that while there is a good amount of development underway, much of that is precommitted: “We are also seeing reducing vacancy, driven largely by a lack of ample future supply. It is of course a positive sign that there is over 200,000sqm in development, but there’s a need for more new facilities in the medium to long term.”
Prices on the Shore head north, with limited space for large occupiers
Gaspardy says: “The biggest space constraint at present is in the North Shore, which has limited options for large industrial occupiers. What is more, there is only 4,500sqm of development underway on the Shore’s industrial precincts of Albany and Silverdale, with just three construction projects in the works so far this year. As a result, the North Shore has the highest rent for both prime industrial and secondary industrial space.
Gaspardy says that there are still options for wise industrial occupiers, even if there is limited stock: “Although current development activity may be weak, and it is particularly true that in the more traditional parts of the North Shore there are few options, in Silverdale there is the Highgate Business Park project with around 200,000sqm of industrial space capacity - which we currently classify as long term potential. So while there may technically limited space, there are options out there for savvy occupiers.”
Exporters: act early
Boyle says that of all industries, the export and manufacturing sector must be thinking about future property needs well in advance: “Exporters in particular need to address their spatial requirements at least 24 months out from lease expiry or any changes in your growth curve. With a lack of Grade A space, and a decreasing supply of land available for development, there is growing pressure on the market.
“Ensure you have allowed time for sourcing an existing or new facility or warehouse, because two years might seem like a long time at present, but in property terms, and particularly for this sector, you won’t regret planning and acting as early as possible if it means your operations can continue without downtime.
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.
