Auckland, 23 November 2015 - Activity in the industrial property market picked up dramatically towards the end of Q3 and into Q4, says CBRE New Zealand’s Industrial and Logistics team.
Claus Brewer says the industrial market went through something of a lull in mid-2015, which can be attributed to factors including uncertainty about the economy and fluctuating dairy prices. As confidence grows in H2, industrial occupiers are increasing activity and looking at options for expansion:
“Now, we’re seeing that people in the industrial space, and freight and logistics in particular, are making moves. There’s demand for larger premises, and the flight to quality we’ve seen in the last few years is showing no signs of abating; if anything, the sector is demanding even higher levels of quality and cubic capacity. The foot is back on the gas and people want to move forward”
Cubic capacity is key, as costs and the need for expansion rise
CBRE’s latest industrial survey of occupiers in Auckland shows strong confidence among the sector, and for logistics operators in particular, with over 40% of logistics respondents considering an expansion of property in 2016/2017. In this context of growth and confidence, the flight to quality property among the industrial sector is still evident, says Mr Brewer.
“The shift to quality dates back to the GFC, and the emphasis is very much on cubic savings rather than bottom line cost. Land values, construction costs, rental and total occupancy costs are all at the highest levels since before the GFC, therefore cubic capacity is key.
“If you are in the right facility, operating costs will drop, and that’s the sweet spot that occupiers are chasing as other costs continue to rise. To ensure they’re in the right facility, we’re seeing occupiers look to either new premises to cater for expansion, or for a smaller segment of the market, intensification of current facilities is an attractive option if it’s possible.
Inland Ports: ideal for large operators but harder to access for smaller operators
While some people know about inland ports and their benefits, other operators in the industrial sector are less familiar with the concept and how it might be of value to them.
Mr Brewer says, “There are still a fair few occupiers who don’t consider inland ports, but we are seeing more and more businesses with interest in these ports, because they are aware of the value of having close proximity to rail sidings and access points.
“However, it can be tough for a single operator to get a rail siding and get on the trunk line, so the operators that can get into the ports and into rail sidings are generally the largest operators, or ones who are major transport providers.”
CBRE says many occupiers assume there’s a discount for larger sites due to their sheer size; however, because the larger format is so scarce, particularly in Auckland, there is in fact a premium attached to the larger format.
Mr Brewer says while the majority of businesses don’t have the grunt to get on the main trunk line, it’s the nearby properties and business parks that offer effective options for the smaller operators.
“Business parks near to inland ports are the way forward for many industrial businesses. The parks or facilities can be configured and designed so that they are efficient for transportation, and offer accessibility to the nearest inland port.”
Rail sidings appeal to larger format users: smaller occupiers band together for muscle
There are substantial barriers to entry when it comes to rail sidings, says Mr Brewer.
“To make it worthwhile, rail sidings have to have sites of at least a few hectares, so they are naturally better-suited to larger format users who have lots of volume and therefore a level of activity and movement of goods that warrant a rail siding.
“We are seeing a slight increase in some smaller operators banding together to get access to rail sidings, which is a smart and collaborative way of working. It is a trend we’re expecting to see continue as industrial and logistics operators in particular see the value and efficiencies that can come from a rail siding.”
Mr Brewer says locating closer to rail sidings and of inland ports between Auckland, Hamilton and Tauranga presents some incredible opportunities and efficiencies for freight and logistics operators.
Closer than ever: Golden Triangle reduces space between cities
The distance between the key distribution points of Auckland, Hamilton and Tauranga is ever-reducing. With the success of the Tauranga Port showing no signs of abating, due in large part to the cost-effectiveness of landing product there, as well as the growing attractiveness of Pokeno as an industrial hub, people are becoming far more economic in the way they use freight.
“Freight and logistics operators have got more choices, and when equipped with the right level of resource, they’re able to analyse and understand what’s happening in their market.
CBRE says the level of enquiry coming from the market for a large site on the rail line in Pokeno, is demonstrative of the attractive nature of the once-unpopular area. Pokeno has the labour force to cater for the industrial sector, it’s affordable, and what is more, it’s strategically positioned to benefit from the roading connections and rail lines between Auckland, Hamilton and Tauranga.
Don’t leave it too late: engage early
Mr Brewer says the market dynamics have shifted considerably in the last two years, as has the education process for occupiers and tenants. People have to move swiftly to ensure they’re on top of their property needs.
“Many occupiers create their own issues, because they don’t take into account how much time needs to be allocated to finding new premises. Scheduling quarterly check-ins with your property advisor is a good way to keep abreast of opportunities and challenges that could affect your real estate requirements.
“They don’t have to be long or extremely detailed, but these briefings can be the difference between having the right premises in the right location that creates cubic savings, and having a lease expire before you can move from premises that are unsuitable or inefficient l and you’ve not left enough time to do anything about it.
View the FTD Magazine article here
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