Article
What does the year-end Auckland industrial occupier survey mean for occupiers?
On the face of it, our latest survey shows that over the last six months to December 2023, vacancy across the region remained stable at 0.5%, or circa 75,000sqm. While ‘Prime’ vacancy dropped from 0.6% to 0.3%, ‘Secondary’ vacancy increased slightly from 0.5% to 0.7%, or by 19,000sqm. There is some easing but this trend is expected to continue in 2024 with a sluggish economy exacerbating more volatility in the ‘Secondary’ market than the ‘Prime’ market.
April 4, 2024
Media Contact
Dan Scott
Marketing and Pitch Director, New Zealand
Overall, vacancy is still exceptionally tight. For an occupier to occupy space within a short timeframe the market is still very challenging, but not to the extent it was in 2023 when the market was effectively dysfunctional.
Our survey reveals that the development market remains active, delivering 137,200sqm of net additional stock over the last six months to December 2023. However, much of the development pipeline was pre-committed and there are still not a lot of speculatively developed buildings available for lease. Therefore, it is unlikely that we will see much vacant and available space coming to the market, and we are likely to see sustained low vacancy albeit balanced with some sublease footprint coming to the market. Given both high pre-commitment levels and potential economic headwinds in 2024, CBRE Research forecasts ‘Prime’ vacancy will increase slightly to 1.4% while ‘Secondary’ vacancy is likely to increase to 2.3% by the end of 2024.
When you look at our market holistically, we have moved through the last few years from a just-in-time to a ‘just-in-case’ market. This has balanced somewhat as container and shipping costs have reduced significantly from their COVID-era pressure. We are now in a period in which a number of occupiers, including logistics providers, are normalising their footprints, so the property market is starting to normalise too. That said, we have seen demand reduce a bit for leased space purely on the back of consumer spending coming back. Inventory levels that needed growth to support the just-in-case market are finding a balanced position.
A key factor driving industrial footprint needs is immigration. Statistics New Zealand shows during the year ended January 2024, the estimated net migration hit a record 133,800, with much of that number drawn to our major cities. As stats from Australia show that 4.5sqm of warehouse space is needed for every consumer, we still see growth in industrial footprint coming through to accommodate market and immigration growth. In New Zealand we estimate the footprint to be 8.2sqm for each consumer.
Also, when you look at the industrial and logistics market, any onshore manufacturer or distributor will continue to require footprint, which is therefore likely to mean continued and sustained stability and growth. We are also seeing appetite and growth from occupiers outside New Zealand investigating when and where to enter the market. This demand is likely to continue at a good level. CBRE Research forecasts the average annual net absorption in the next four years will be 207,000sqm, close to the last ten years’ average of 236,000sqm.
In this continuing tight market, anyone thinking about their next move needs to plan further ahead than ever. Specifically, larger footprint users should be thinking three years out. This is partly due to their need to design facilities to align with their requirements. It can take between three to 12 months and sometimes longer, to fully design how a facility should work based on occupier needs, depending on the level of complexity involved.
Part of this time is taken up by the often significant amount of work that needs to be done in network and facility design, as well as site selection, and the legals. If occupiers need a network study, our Facility Design and Supply Chain team offers this as a specialised service to ensure that each facility has the right design and in the right locations for the occupier’s network model and their operational needs.
Build periods have been pushed out and now sit between 18-24 months depending on the site and location. Pre-COVID you would have been looking at 12-18 months. There will still be examples of facilities being built at a faster pace, but 20-24 months is now the normal timeline that we are working on from an unconditional agreement to lease.
It is really important that occupiers align with and grow in locations that support multi/intermodal infrastructure, as this is the key to resilience for many occupiers who move significant product volume.
Looking at where space is coming into our market, the Puhinui Corridor has future development, with major landlords and developers such as 100 Prices Road Limited speculatively constructing two facilities that are available imminently. LOGOS is close to completion for a warehouse of approximately 22,000sqm in their Wiri Industrial Estate, and the corridor in Wiri and Auckland Airport have greenfield options of scale. More centrally we are seeing speculative brownfield redevelopments like Argosy’s Neilson Street property.
Shifting South, there are also the considerations of Drury and Waikato, where we have seen the success of the Ruakura Superhub providing large-scale solutions for core distribution centres. That location offers the fundamentals of inland port infrastructure and excellent connectivity, providing occupiers with resilience through road, rail, sea and air options.
Our survey reveals that the development market remains active, delivering 137,200sqm of net additional stock over the last six months to December 2023. However, much of the development pipeline was pre-committed and there are still not a lot of speculatively developed buildings available for lease. Therefore, it is unlikely that we will see much vacant and available space coming to the market, and we are likely to see sustained low vacancy albeit balanced with some sublease footprint coming to the market. Given both high pre-commitment levels and potential economic headwinds in 2024, CBRE Research forecasts ‘Prime’ vacancy will increase slightly to 1.4% while ‘Secondary’ vacancy is likely to increase to 2.3% by the end of 2024.
When you look at our market holistically, we have moved through the last few years from a just-in-time to a ‘just-in-case’ market. This has balanced somewhat as container and shipping costs have reduced significantly from their COVID-era pressure. We are now in a period in which a number of occupiers, including logistics providers, are normalising their footprints, so the property market is starting to normalise too. That said, we have seen demand reduce a bit for leased space purely on the back of consumer spending coming back. Inventory levels that needed growth to support the just-in-case market are finding a balanced position.
A key factor driving industrial footprint needs is immigration. Statistics New Zealand shows during the year ended January 2024, the estimated net migration hit a record 133,800, with much of that number drawn to our major cities. As stats from Australia show that 4.5sqm of warehouse space is needed for every consumer, we still see growth in industrial footprint coming through to accommodate market and immigration growth. In New Zealand we estimate the footprint to be 8.2sqm for each consumer.
Also, when you look at the industrial and logistics market, any onshore manufacturer or distributor will continue to require footprint, which is therefore likely to mean continued and sustained stability and growth. We are also seeing appetite and growth from occupiers outside New Zealand investigating when and where to enter the market. This demand is likely to continue at a good level. CBRE Research forecasts the average annual net absorption in the next four years will be 207,000sqm, close to the last ten years’ average of 236,000sqm.
What all this means for occupiers is four things:
Any expectation that rentals will slide significantly is unlikely. They did not slide in post-GFC times, and we don’t expect they will now. We are likely to see some stabilisation and even some face rent growth, although at a subdued level, so those waiting for things to change dramatically are unlikely to see it come to pass. CBRE Research shows rental growth over the last two years was approximately 30%. While some new or top-quality buildings can still achieve higher rent benchmarks, the remaining ‘Prime’ buildings’ effective rents are likely to keep stable or experience slight drops by around 1% due to higher incentives. ‘Secondary’ rents are more sensitive to economic weaknesses, indicating a less sharp but more sustained decline in ‘Secondary’ rents compared to ‘Prime’ rents in 2024 and 2025.In this continuing tight market, anyone thinking about their next move needs to plan further ahead than ever. Specifically, larger footprint users should be thinking three years out. This is partly due to their need to design facilities to align with their requirements. It can take between three to 12 months and sometimes longer, to fully design how a facility should work based on occupier needs, depending on the level of complexity involved.
Part of this time is taken up by the often significant amount of work that needs to be done in network and facility design, as well as site selection, and the legals. If occupiers need a network study, our Facility Design and Supply Chain team offers this as a specialised service to ensure that each facility has the right design and in the right locations for the occupier’s network model and their operational needs.
Build periods have been pushed out and now sit between 18-24 months depending on the site and location. Pre-COVID you would have been looking at 12-18 months. There will still be examples of facilities being built at a faster pace, but 20-24 months is now the normal timeline that we are working on from an unconditional agreement to lease.
It is really important that occupiers align with and grow in locations that support multi/intermodal infrastructure, as this is the key to resilience for many occupiers who move significant product volume.
Looking at where space is coming into our market, the Puhinui Corridor has future development, with major landlords and developers such as 100 Prices Road Limited speculatively constructing two facilities that are available imminently. LOGOS is close to completion for a warehouse of approximately 22,000sqm in their Wiri Industrial Estate, and the corridor in Wiri and Auckland Airport have greenfield options of scale. More centrally we are seeing speculative brownfield redevelopments like Argosy’s Neilson Street property.
Shifting South, there are also the considerations of Drury and Waikato, where we have seen the success of the Ruakura Superhub providing large-scale solutions for core distribution centres. That location offers the fundamentals of inland port infrastructure and excellent connectivity, providing occupiers with resilience through road, rail, sea and air options.