Auckland, 10 February 2015 - Companies looking for vacant Auckland industrial space in 2015 could struggle after 2014 saw the most significant decline in vacancy rates since the early 2000s, according to the latest research by CBRE.
The research shows that industrial vacancy across the city declined by a third during the past year, from 3.7% in December 2013 to 2.5% in December 2014, the lowest since 2007. Although new supply lifted the industrial stock by a net 140,000sqm during the year, net absorption totaled 280,000sqm.
Zoltan Moricz, Senior Director of New Zealand Research for CBRE, says that the decline in vacancy is due to strong occupier demand, and has occurred despite a healthy supply pipeline.
“The market has been especially active in the last six months, with new supply and absorption peaking in the second half of 2014. Although new supply lifted total industrial stock by a net 140,000sqm this year, somewhat above the last five years’ average, it was more than offset by demand, with net absorption totalling 280,000sqm, which is by a large margin the strongest annual take up since the onset of the GFC.
“Supply and demand have concentrated in East Tamaki, Mt Wellington and the Airport Corridor, between them accounting for 90,000sqm of new stock. The largest of these were James Kirkpatrick Group Limited’s Leon Leicester development of over 27,000sqm in Mt Wellington, the 16,500sqm Metroglass premises in East Tamaki and the 12,000sqm DHL premises in the Airport Corridor.”
Moricz says that the 1.2% Prime Grade A market vacancy is exemplified by the fact that every one of the 25 new buildings completed in the second half of 2014 was taken up by the end of the year, despite some being built on a speculative basis.
Moricz says that although demand is concentrated in Prime quality Grade A buildings, with 158,000sqm of net absorption in the past year, it is also spilling down to Grade B, better secondary quality premises, largely driven by a lack of available prime space.
“B grade space has experienced nearly 100,000sqm of net absorption which, in combination with little new supply, led to a substantial portion of the existing B grade vacancy disappearing from the market. Grade B vacancy has declined from 5.3% to 3.3% during 2014.”
Looking ahead, Moricz says that demand and vacancy patterns imply a ready occupier market for increased supply.
“When you combine the speedy take up of all recently completed new buildings with a low Prime vacancy rate, strong take up of better quality secondary premises, and substantial fall in the vacancy of these better quality secondary premises, it suggests that the Auckland industrial occupier market is ready for an acceleration in the supply of new buildings.”
“Economic growth in 2015 is forecast remain above average. Surveys of both capacity utilisation and intentions to take on new productive capacity indicate that the occupier market is ready to absorb new industrial stock.
“For occupiers, the emerging situation in the industrial property market means that despite this readiness, the low vacancy and low supply situation into 2015 will restrict their choices of business space where compromises and suboptimal choices in relation to building specification, size and/or location may have to be made.”
“With capacity pressures becoming an increasingly significant constraint to businesses, lack of suitable business space could curb the economy’s growth potential in the coming year. This environment will also tilt the balance of power in the industrial property market towards landlords, which implies that industrial occupancy cost inflation will be well ahead of general inflation.”
“There is likely to be insufficient Grade A industrial warehouse space available over the next 12-18 months. We’re seeing requirements for improved specs relating to floor loading to ensure maximum cubic capacity plus efficient and workable facilities with truck access and canopies. So, although we are seeing some speculative development taking place across South Auckland, occupiers need to plan ahead if they want to secure the space if it is new or the quality that they need.”
View CBRE's Auckland Industrial Market ViewPoint
Images of 13 Ha Crescent in Wiri – marketed by CBRE, this is a 7,786sqm freehold site with dual street access. The A grade buildings cover an area of 4,996sqm, comprising a 3,671sqm warehouse with 10 metre clear span and three roller doors, plus 507sqm of office space and an 818sqm drive-through canopy area, with vacant possession from February 2015.
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 2014 revenue). The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 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.