Christchurch, 23 September 2014 - While the nation is focused on the rebuild of the Christchurch CBD, the industrial property sector is flourishing across the Canterbury region particularly in city fringe hubs.
Mike Beresford, Director for CBRE Industrial and Logistics Services, says: “To date, much of the rebuild microscope has focused on the CBD. However, the landscape of the city has changed. There’s significant industrial growth in the northern areas and out in the West, from Izone through to Belfast.
“The Southern Motorway extension which connects Lyttelton Port and Hornby substantially reduced the drive time from 30 minutes to just 15 minutes. For those operating within the freight and logistics sector, any reduction in travel time has been well-received.”
Beresford says that the industrial market was always going to be at the forefront of the city’s rebuild as building supply companies, engineering facilities and supply chains jockeyed for position in readiness for a solid 10 year business strategy.
“In saying that, the industrial sector has been strong in the region for many years with steady growth from the agriculture and export sector, but more recently the strong dollar has swung activity towards businesses entrenched in the construction sector. Six months after the earthquakes the market was scary and a ‘dog eat dog’ mentality prevailed while companies competed strongly to secure premises to keep their businesses running.
“The market has settled in to a more stable pattern, but there still remains numerous companies mindful of the need to increase storage or manufacturing capacity otherwise they might miss the ‘rebuild’ boat.”
“There has been a lot of movement around the city and we certainly have seen some big sales particularly with land sales. For example, the sale of the Alliance Meat freezing works in Sockburn was pretty major for the region: it sold out 19 lots, leaving just one for sale, in less than 12 months, which is a strong indication of the demand for industrial space in the area.
“A number of major industrial parks, such as Ngāi Tahu’s Wigram Skies, Dakota Park, Waterloo Business Park, Hornby Quadrant and have successfully sold down or developed land for a number of key ‘Owner Occupiers’.
“Izone has of course experienced a number of sales particularly to owner-occupiers but in addition will also feel the positive flow on effect from the Port of Tauranga’s move into the region and more recently the establishment of Lyttelton Port Company’s inland ports on the adjacent area to the Izone precinct.”
Beresford notes that the growing level of disparity between new build costs and existing spaces for tenants is becoming a prevalent issue for those operating in the region: “The new build costs are around $115 - 120 per sqm, whereas pre-quake it was in the early $90 range per sqm.
“Typically speaking, we are now seeing industrial-zoned land selling between $230 - $280 per sqm, which is quite a jump again from pre-earthquake levels. A combination of tenants preferring to own their own properties and limited unencumbered freehold land has driven land to record levels.
“At the end of the day people are recognising potential lost opportunity that will occur if they don’t take advantage of Canterbury’s growth over the next ten years now, so whether that means a new build, a straight relocation, or refurbishing an existing space, now is the time to act and seize those opportunities that will enhance their business well into the future.”
Beresford says that with the Hornby Quadrant development by Calder Stewart swinging into action as the southern motorway extension enters its second phase, which will mean a bypass away from Halswell Junction Road diverting Hornby area for much of the freight traffic, there are some interesting developments taking place in the region:
“A noteworthy change is the strength of drive from the agricultural sector on property movement. Typically freight and logistics operators want to be close in proximity to dairy producers so what we’re seeing with the Ports’ is the creation of inland ports / container hubs, which are largely to support the dairy market. This activity will be great for Izone Business Park in Rolleston.
“Nevertheless, key freight and logistics operators will continue to grow their businesses in the Hornby area, not because it is New Zealand’s second largest industrial hub but because all their supporting services/business are firmly housed in this area.
“However, I don’t believe the activity we are seeing in Izone will make that much difference to Hornby which is the largest industrial area.”
Beresford says the key factor that freight and logistics operators take into account is the utilisation of warehouse space: Warehousing has become a science, where stock location based on movement frequency, specialised handling equipment, racking design, labour source, operating costs, location to customers’ delivery times and of course building design are all major factors.
Typically companies are paying more for new buildings with rentals reaching $100psm for large format +5000sqm facilities but Beresford says the benefit is that new builds ensure that occupiers get the specifications and utilisation they want from the facility.
Beresford says an option that several of his clients have found effective is the use of Third Party Logistics (3PL) which is a popular approach internationally and particularly in the Europe markets where wholesalers and manufacturers appoint 3PL operators to handle their logistics.
New build option work well for Third Party Logistics (3PL) operators as they can apply creative and state of the art technology to service their customers by maximising utilisation while at the same time providing safe and clean solutions for distribution.
Beresford says, “A trend that is increasing in the market is the number of companies outsourcing their warehousing operations, as cost cutting measures and asset efficiencies.
“What 3PL offers is a storage service, where your stock is warehoused, and you are charged for each time their staff need to shift your stock, and for the time your stock is with them. If you have a seasonal product like heaters for example, why would you pay for a year-round warehouse, plus staff and equipment, when you only import and distribute in the winter months?”
Beresford says the cost of transportation and storage becomes a fixed price on your product, and there are some major players using the 3PL service, including Bunnings and Mitre 10 who use 3PL for their outdoor furniture ranges in the warmer months.
Beresford’s advice to the industrial sector in Canterbury? “Don’t underestimate how long finding, updating or building a property can take. Plan well and plan early - and you will reap the benefits.
“One of the big complaints we hear in the market is that there is major pressure on businesses when they’ve left it late in the piece to relocate. By leaving your move and/or new build to the last minute, you are really minimising your options. Companies clearly have an expectation of quality, but because we have a shortage of A and B Grade buildings in Canterbury at present, not acting early can come at a cost - and again, this comes down to planning.
“I see too many businesses end up with space that doesn’t quite meet their needs. It does take time to source the right facility but approaching an agent or agency that has a strong understanding of the market is imperative. Our team are always happy to help guide people through these processes and ensure planning takes place to make the transition as smooth as possible.”
View this article in FTD Magazine online
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.
