Article
Shift in industrial market dynamics brings more opportunities for occupiers
The re-emergence of some vacancy in the industrial property market this year is opening up more options for occupiers searching for premises, following years of extremely low vacancy since the Covid pandemic.
December 5, 2024
Media Contact
Dan Scott
Marketing and Pitch Director, New Zealand
While vacancy remains tight, the trend towards slightly more available space is resulting in a more functional market for occupiers, especially at the prime end of the quality range.
CBRE’s latest research shows a slight rise in industrial vacancy in all three main centres since the end of 2023. While small, the uptick in vacancy is enough to signal a shift in market dynamics in favour of occupiers, although the overall vacancy rate is still very low around the country on historic measures.
Claus Brewer, National Director of Industrial & Logistics at CBRE said occupiers now have a little more breathing space when considering their opportunities.
“There’s now more choice emerging in the market when it comes to premises size, location and availability. Depending on the strength of the occupier and the lease structure we are seeing tenants being incentivised to commit to industrial property.”
This has resulted in subleasing becoming a particular area of opportunity, Brewer said.
“The emergence of more sublease space alongside slightly higher vacancy in general across the market is giving rise to a wider range of opportunities for occupiers. We’re seeing particular interest among many occupiers in taking subleased property, which often provides flexibility around the amount of space occupied, timing of occupation and lease length.”
The rise of subleasing can be traced back to the rapid expansion of the logistics & warehousing sector during and after the Covid pandemic. The sector was forced to operate on a ‘just in case’ basis, holding more inventory to safeguard against high container and shipping costs and the unreliability of supply. Faced with the immediate need for more space, many of the major players leased additional space in order to continue to service their customers adequately.
This resulted in vacancy contracting to almost zero in Auckland and Christchurch, leaving very few options for occupiers searching for new premises.
With the subsequent impact of high interest rates on household incomes and more subdued economic conditions, the logistics sector is reverting back to a balance between ‘just in time’ and ‘just in case’ models, holding less inventory locally as global supply chains and shipping costs normalise. This shift in the market means many occupiers have now found themselves left with larger than optimum property footprints, said Brewer.
“This has kicked off the current trend among tenants to sublease excess space, as they seek to rationalise their property costs and achieve greater efficiency in their use of property.”
Auckland:
Industrial vacancy rose from 0.5% at the end of 2023 to 1.0% in June 2024, equivalent to 70,000sqm more vacant space across the city’s industrial areas.
This was primarily driven by occupancy consolidation, backfill vacancies emerging as tenants move, and the completion of new speculative builds.
Net absorption (the change in the amount of occupied space) has now lagged net supply of space since the first half of 2023, said Zoltan Moricz, CBRE’s Executive Director of Research.
“While net absorption of industrial property is still positive, it has moderated from the Covid-related boost of the past three years. The fact that net supply of space has now edged ahead of net absorption signals a gradual softening in the industrial market.”
Face rents have been largely stable so far in 2024, but more incentives offered for strong covenants and longer lease terms.
“Landlords, along with some developers, are willing to provide higher incentives to ensure good occupancy levels. We forecast incentives are likely to continue to be a feature of the market into 2025.”
The up tick in the vacancy rate that has emerged this year in Auckland is also expected to persist through to the end of 2025, with around 80% of the new stock expected to enter the market this year pre-committed.
“This vacancy and rental outlook will be welcome news to occupiers who have been struggling to find suitable industrial space in Auckland in recent years. However, it’s important to note that while we forecast a gradual moderation in vacancy and rents from the levels of the past few years, with more opportunities for occupiers, prime industrial property is still expected to continue to perform well compared with long-term metrics,” said Moricz.
Christchurch:
Vacancy also began to rise in the first half of 2024 from extremely low levels over the past year and a half.
Several tenants have downsized their footprints because of diminished customer demand and consolidation. Vacancy is now 1.4% as at June 2024, up from 0.6% in the second half of 2023.
Notably, demand for industrial space in Christchurch has become more subdued, combined with an emergence of occupiers subleasing part of their premises and large companies downsizing for the time being.
Vacant space emerging in the market has become more noticeable in the second half of this year as some occupiers relocate to new purpose-built assets, as well as disposing of surplus footprint.
Rents were stable in Christchurch in the second quarter of 2024, after a few years of gradual growth.
Wellington:
The industrial market is displaying stronger trends than both Auckland and Christchurch, with stable to increasing face rents and zero vacancy in A-Grade properties illustrating the continuing high demand for quality industrial space. New supply remains active.
The industrial market was the only commercial property sector in Wellington to see positive rental growth in the second quarter of 2024. Prime gross effective rents were up by 3.8% compared with a year earlier, while incentives have held steady for more than four years.
“The market is becoming more active but subleasing opportunities may not always be advertised. Working closely alongside an agent or consultant who has close relationships with the landlords and tenants in their market is a key advantage in helping occupiers capitalise on upcoming opportunities to achieve optimum use of industrial property.”
We are experiencing a positive change in sentiment post the recent shift in the official cash rate. Our markets can change quite quickly given their scale and ensuring you are being proactive with your occupancy strategy remains key.
CBRE’s latest research shows a slight rise in industrial vacancy in all three main centres since the end of 2023. While small, the uptick in vacancy is enough to signal a shift in market dynamics in favour of occupiers, although the overall vacancy rate is still very low around the country on historic measures.
Claus Brewer, National Director of Industrial & Logistics at CBRE said occupiers now have a little more breathing space when considering their opportunities.
“There’s now more choice emerging in the market when it comes to premises size, location and availability. Depending on the strength of the occupier and the lease structure we are seeing tenants being incentivised to commit to industrial property.”
Subleasing becoming more common
More space is also becoming available on a subleased basis, as some occupiers look to shrink their physical footprint and rationalise property costs as the Covid-era boom diminishes.This has resulted in subleasing becoming a particular area of opportunity, Brewer said.
“The emergence of more sublease space alongside slightly higher vacancy in general across the market is giving rise to a wider range of opportunities for occupiers. We’re seeing particular interest among many occupiers in taking subleased property, which often provides flexibility around the amount of space occupied, timing of occupation and lease length.”
The rise of subleasing can be traced back to the rapid expansion of the logistics & warehousing sector during and after the Covid pandemic. The sector was forced to operate on a ‘just in case’ basis, holding more inventory to safeguard against high container and shipping costs and the unreliability of supply. Faced with the immediate need for more space, many of the major players leased additional space in order to continue to service their customers adequately.
This resulted in vacancy contracting to almost zero in Auckland and Christchurch, leaving very few options for occupiers searching for new premises.
With the subsequent impact of high interest rates on household incomes and more subdued economic conditions, the logistics sector is reverting back to a balance between ‘just in time’ and ‘just in case’ models, holding less inventory locally as global supply chains and shipping costs normalise. This shift in the market means many occupiers have now found themselves left with larger than optimum property footprints, said Brewer.
“This has kicked off the current trend among tenants to sublease excess space, as they seek to rationalise their property costs and achieve greater efficiency in their use of property.”
Research figures show slight shift towards occupiers’ market
CBRE Research’s latest figures show higher vacancy and increased incentives in the industrial market, indicating a shift in the market in favour of occupiers.Auckland:
Industrial vacancy rose from 0.5% at the end of 2023 to 1.0% in June 2024, equivalent to 70,000sqm more vacant space across the city’s industrial areas. This was primarily driven by occupancy consolidation, backfill vacancies emerging as tenants move, and the completion of new speculative builds.
Net absorption (the change in the amount of occupied space) has now lagged net supply of space since the first half of 2023, said Zoltan Moricz, CBRE’s Executive Director of Research.
“While net absorption of industrial property is still positive, it has moderated from the Covid-related boost of the past three years. The fact that net supply of space has now edged ahead of net absorption signals a gradual softening in the industrial market.”
Face rents have been largely stable so far in 2024, but more incentives offered for strong covenants and longer lease terms.
“Landlords, along with some developers, are willing to provide higher incentives to ensure good occupancy levels. We forecast incentives are likely to continue to be a feature of the market into 2025.”
The up tick in the vacancy rate that has emerged this year in Auckland is also expected to persist through to the end of 2025, with around 80% of the new stock expected to enter the market this year pre-committed.
“This vacancy and rental outlook will be welcome news to occupiers who have been struggling to find suitable industrial space in Auckland in recent years. However, it’s important to note that while we forecast a gradual moderation in vacancy and rents from the levels of the past few years, with more opportunities for occupiers, prime industrial property is still expected to continue to perform well compared with long-term metrics,” said Moricz.
Christchurch:
Vacancy also began to rise in the first half of 2024 from extremely low levels over the past year and a half. Several tenants have downsized their footprints because of diminished customer demand and consolidation. Vacancy is now 1.4% as at June 2024, up from 0.6% in the second half of 2023.
Notably, demand for industrial space in Christchurch has become more subdued, combined with an emergence of occupiers subleasing part of their premises and large companies downsizing for the time being.
Vacant space emerging in the market has become more noticeable in the second half of this year as some occupiers relocate to new purpose-built assets, as well as disposing of surplus footprint.
Rents were stable in Christchurch in the second quarter of 2024, after a few years of gradual growth.
Wellington:
The industrial market is displaying stronger trends than both Auckland and Christchurch, with stable to increasing face rents and zero vacancy in A-Grade properties illustrating the continuing high demand for quality industrial space. New supply remains active.The industrial market was the only commercial property sector in Wellington to see positive rental growth in the second quarter of 2024. Prime gross effective rents were up by 3.8% compared with a year earlier, while incentives have held steady for more than four years.
How can occupiers find the best space for their needs?
With the recent shift in the industrial market signalling increased opportunities for businesses looking to move, occupiers are advised to consult experts who know the market, whether they are looking to sublease excess space or move, said Brewer.“The market is becoming more active but subleasing opportunities may not always be advertised. Working closely alongside an agent or consultant who has close relationships with the landlords and tenants in their market is a key advantage in helping occupiers capitalise on upcoming opportunities to achieve optimum use of industrial property.”
We are experiencing a positive change in sentiment post the recent shift in the official cash rate. Our markets can change quite quickly given their scale and ensuring you are being proactive with your occupancy strategy remains key.