CBRE surveys show tight prime industrial & office markets as South Island economy revs up

New CBRE surveys of South Island provincial centres show prime office and industrial stock is effectively fully occupied in most cities.

The inaugural surveys, which provide the first comprehensive view of vacant space in regional commercial & industrial property, reveal there is only minimal availability in top-tier space across both sectors throughout the South Island.

This reflects the positive impact on businesses of the high-performing South Island economy, where growth in key industries including tourism and agribusiness is translating through to strong demand for business premises.

Tim Rookes, CBRE Christchurch Managing Director, said the consistent economic performance throughout the South Island prompted the move to collect vacancy data from a greater number of centres, where previously only Christchurch was surveyed.

“Our clients are increasingly active in towns and cities around the South Island, where strong-performing regional economies are creating compelling investment opportunities. This trend meant we saw the need to provide investors with accurate data on commercial & industrial vacancy to help them make informed decisions.”

The South Island continues to outperform the North on several measures as the tourism rebound, strong rural sector, the construction boom, migration and a comparatively healthier housing market continue to drive the regional economy. Property also offers comparatively better value for money than the North in many centres and sectors, Rookes said.

“The South Island is riding a wave of optimism as economic tailwinds combine to create a highly attractive environment for doing business and investing in property. The strong dairy payout forecast and commodity prices generally are boosting our primary sector. The tourism rebound is gathering strength and is forecast to deliver a steadily increasing economic impact over the coming years. Combined with the health of many other local industries, the South Island is now leading New Zealand in economic and property market growth.”

This is resulting in tight industrial and office markets where tenants are competing to secure prime space.

Among the provincial centres surveyed, four submarkets have virtually zero vacancy. These are Queenstown industrial, Nelson grade A office, Invercargill grade B industrial and Invercargill grade B office, said Jorge Chang Urrea, CBRE Research Manager.

“Queenstown recorded zero industrial vacancy across all quality grades, making it the only city in New Zealand with negligible vacant industrial space across all submarkets. This exceptionally tight market is driven by a severe shortage of available property and very strong occupier demand.”

Several other submarkets have extremely low vacancy of around 1% or less, including Queenstown grade B offices, Nelson grade B industrial, Invercargill grade A office and Invercargill grade A industrial. Dunedin grade A office vacancy is also very low, at 1.7%. 

Secondary-grade industrial property recorded a slightly higher vacancy rate in most centres, however vacancy is still low in most secondary submarkets. This reflects the strength of the industrial property sector nationally, where tenant demand has resulted in vacancy rates in many regional centres being among the lowest in Australasia.

“With prime industrial property in most South Island centres virtually full, tenant demand has flowed through into the secondary-grade sector, where our surveys show low vacancy rates as a result,” said Chang Urrea.

The submarkets with the highest vacancy rates are typically secondary-grade offices, with most centres showing a softer office market in B and C grades. 

Higher vacancy in lower-quality and less well-located premises is typical of the current market in many centres nationally, where post-pandemic trends including  a flight-to-quality and downsizing have resulted in very low prime office vacancy in many centres. 

As lower interest rates and strong regional economic growth flows through into improved investor confidence, transactional activity is also expected to increase, said Rookes.