…and regional infrastructure developments are set to reduce space further
Wellington, 20 February 2016 - Wellington’s industrial property sector has awoken, with vacancy dropping more than 10% over the past year despite a small increase in supply overall, driven by a number of factors that are revealed in the latest Wellington Industrial MarketView research published by CBRE.
Furthermore, tightening space availability and a number of infrastructure developments are set to take more stock out of the market over the course of the next year.
The research highlights that:
- Industrial stock in the region increased by a net 2,920 sqm in the 12 months to December 2015
- At December 2015, vacant industrial space in the region totaled 164,773 sqm, down 20,253 sqm (10.95%) on the previous year’s total
- The overall vacancy rate decreased from 8.8% to 7.8% during 2015 – and Grade A saw the most prominent decrease in vacancy, from 7.2% to 3.8%
- Seaview, the largest of all industrial suburbs, has seen a sizeable 23,567 sqm reduction to 5.3% vacancy since December 2014.
Factors underpinning the drops include:
- Lack of supply pipeline - industrial stock increased by only a net 2,920 sqm over the twelve months to December 2015, and purely due to an increase in Grade A stock; the lone contributor being 3 George Daniels Drive in Upper Hutt, where both Revera data centres (2,500 sqm each) were completed.
- Tenants demanding prime industrial space - 25,948 sqm was taken up during the period, with numerous locations in the region recording positive absorption in excess of 5,000 sqm as occupiers take up surplus stock that had been vacant in previous years. Of significance were Brentwood Transport moving into 11 Barnes Street (12,042 sqm), A1 Car Parts into 138 Hutt Park Road (5,440 sqm).
- Increased demand - Grade A vacancy decreased by 15,352 sqm over the last twelve months, primarily as a result of occupation of 11 Barnes street, Revera’s purpose built data centres, and the Woodward Group occupying 2080sqm at 12 Centennial Highway. Grade B vacancy decreased by 9,173 sqm, a 191 basis point change largely due to 138 Hutt Park Road and 4,523 sqm occupied by Thermosash at 19B Seaview Road.
Richard Carr, CBRE’s Wellington research analyst, says that the numbers show that occupiers are already chasing higher quality premises: “Positive net absorption resulted in a decrease in overall vacancy, with Grade A experiencing a significant decrease in vacancy of 341 basis points. Grade B continues to have the highest vacancy rate at 10.0%, however this has also been subject to a 191 basis point decrease.
“A positive net absorption of 25,948 sqm was recorded for the Wellington area. Grade A experienced a overall positive net absorption over 20,000 sqm. Only Grade D alone was subject to negative net absorption (-13,604 sqm) with tenants typically relocating to higher grade stock.”
Gary Hansen, Sales & Leasing specialist at CBRE Wellington, says that over the past six to nine months occupier interest has risen dramatically, driven by low interest rates, with the effect that fewer properties are available to meet occupier requirements than the numbers indicate.
“It’s all about interest rates. Companies renting space are becoming – and looking to become – owner occupiers, which is taking stock out of the market. There are still marketing signs on properties in the market of various sizes, but what we’re seeing is that for specific tenant requirements there might be only two-three buildings to show them.
“Over the last six months in particular people are looking for industrial space and failing, so they are having to make do in their current space. This is not a sustainable situation as their leases will come to an end at some point.”
Hansen adds that planned infrastructure works in and around the Hutt Valley and the Wellington region, as well as some planning changes, will further restrict supply in the near future.
“The new Petone to Tawa link road, which is proposed to start in 2017, will mean the potential demolition of 37 light industrial buildings. Additionally, the WRC flood protection plan presently under public consultation and review will potentially demolish a further 21 industrial properties in Pharazyn Street and Marsden Street, Lower Hutt. This will have a significant impact as these businesses will require relocation in a market with diminishing stock and little development.
“Also a recent Plan Change by the Lower Hutt City council, Plan change 29 in Petone, will have a significant impact on the use of a large number of small industrial buildings in this area toward retail and residential, further reducing available stock.”
“At this rate, there are going to be up to 50-60 tenants and owner-occupiers looking for space in the market at once. Very quickly we are going to see a real shortage of stock, which may lead to development. The conditions are right for development – and for rents to rise.”
View the Dominion Post article here
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