Industrial takes the lead in property market recovery in Hamilton

The industrial sector is leading the Hamilton commercial property market’s recovery, while CBD offices and retail are still feeling the pressure of the economic downturn, according to CBRE research. 

Good demand for high quality industrial property investments is nudging values up, as lowering interest rates encourage investors to return to the market. 

Rob Smithers, Director of commercial valuation in CBRE’s Waikato office, said the increasing demand for investment opportunities in the industrial market is an encouraging sign of positive sentiment becoming more widespread this year. 

“Over the past four or five months we’ve seen more positivity in the industrial market, especially in the smaller asset range under $3 million in value. Investment yields have firmed and values are strengthening as a result of purchasers re-entering the market and creating competition for good quality properties.” 

Behind this trend is the lowering interest rate environment giving purchasers confidence, although a flight to quality is still evident, Smithers said. 

“Investors are still mindful of ticking off all the key investment criteria such as the length of lease term, tenants’ ability to pay the rent, more favourable locations and build quality. This is very important especially at a time when the economy is subdued and businesses are up against reduced consumer spending.” 

The challenging operating environment for occupiers has dampened demand for new construction projects, with very little new industrial space added to the Hamilton market since mid 2022. 

“Demand for industrial space appears to be met by existing supply at this point, but as the economy improves, we expect occupier demand to increase and businesses begin to consider decisions to relocate or move to bigger facilities. This will put upward pressure on rents and act as a catalyst for the next round of industrial design build activity,” said Smithers.  

This should also spur on renewed demand for industrial land, which has been very weak as a result of the subdued activity for design build premises, increased construction costs and the higher rent levels on new premises, he added.  

In the Hamilton CBD, demand for office and retail property also remains muted. Most transactional activity has been at the smaller-scale end of the market, where sellers are becoming more willing to align with market conditions.

However, the announcement of Auckland-based Templeton Group’s plans for a 25-storey hotel, apartment and dining precinct development on a central city riverfront site, in addition to the conversion of the 13-storey Mistry Centre into a Pullman Hotel, signals developers’ confidence in the future of the city centre, Smithers said. 
 
“Following a development lull in the CBD over the past few years it is exciting to see developers press ahead with significant projects. Templeton Group’s plans for its high rise project, alongside the Pullman Hotel conversion, will help address the shortage of CBD rooms and provide more central city living options.”
 
Other central city development projects include the refurbishment of an office building at 18 London Street into contemporary office space; 193 London Street being refurbished for Fonterra; and the construction of the new Waikato Regional Theatre. 

“This new wave of development activity signals a vote of confidence among developers in the future of the Hamilton CBD and will greatly contribute to the reinvigoration of the central city as consumer confidence returns.”

As financing conditions improve, the expected return of syndicators to the market as a prominent buyer group should see larger assets begin to change hands again.

For occupiers, there is limited availability of A grade office space; with higher vacancy in lower quality grades. The staged exit of Fonterra staff out of its London Street headquarters will exacerbate the oversupply of older B and C grade office space. 

“Office tenants are in general postponing decisions to move and the trend among CBD occupiers appears to be weighted towards downsizing rather than upsizing their office space.”