Occupiers navigating their options in a tight Christchurch industrial market

Tenants and owner-occupiers of industrial property in Christchurch continue to face a shortage of existing premises as well as limited options for developable land, with the market expected to remain very tight for the foreseeable future. While the resulting ‘landlord’s market’ – featuring increasing rents, longer lease terms and disappearing lease incentives – undoubtedly raises challenges for occupiers, there are still opportunities for businesses looking to move.

Limited existing space available for lease

New data from CBRE Research illustrates what is already obvious to occupiers searching for industrial space in an extremely tight market – that there is very little stock available. While a significant 112,681sqm of new industrial space was added to the market during 2023, this new space hasn’t really eased the situation for tenants. Vacancy data shows effectively no change from the 0.8% recorded in June 2023, to the latest figure of 0.6% in December 2023.

These market dynamics have now become the status quo, following the very high level of leasing activity in the industrial market in the last six months of 2023. During that period, gross absorption was around 245,000sqm across Christchurch’s industrial precincts, higher than the level recorded during H1 2023 (circa 164,000sqm).
Unsurprisingly, the result of the severe shortage of available industrial premises is strong rent increases, with average prime net effective rents reaching a record high of $136 per square metre in December 2023, up 1.0% compared with three months earlier.

Land availability

The supply of vacant industrial land for owner occupiers and developers in Christchurch is now at an all-time low. The rezoning of more land to accommodate future industrial subdivisions would ease the pressure on the market; however, there is currently limited clarity around where or when the next significant industrial rezoning will occur. 
Coupled with strong demand, the shortage of land has resulted in prices remaining high, despite challenging external economic factors. Recent sales of smaller-sized vacant industrial land lots in Hornby show prices are now well above $400 per square metre on average for smaller lots, with smaller sites in Wigram exceeding $500 per square metre. 
Ngāi Tahu’s Kairua industrial subdivision on Wilmers Road in Hornby, which is now sold out, has achieved particularly strong sale values, with seven lots in the development selling for over $450 per square metre between July 2022 and February 2023. These smaller-sized lots (under 1,500sqm) attracted both developers and owner-occupiers who had been actively searching for suitable properties for some time.

Relationships, flexibility and advance planning the key advantages

The scarcity of land and building stock pose considerable challenges for businesses looking to expand their operations or establish a presence in Christchurch. The situation is essentially the same across all size ranges of both vacant land and existing space, with large and small occupiers equally feeling the squeeze.

The costs and business interruption associated with relocation make any such decision a critical one. Some businesses are closely monitoring their expenditure and many are deferring their decisions to relocate until more clarity emerges around the economic outlook and the impact of the upcoming election.

For others with more immediate requirements, we recommend keeping in regular contact with our team, who actively maintain strong relationships and frequent communication with owners of industrial property in Christchurch. This gives tenants access to upcoming leasing opportunities well in advance of space being offered to the open market. 
While there is currently more demand for premises than available stock, our strong relationships with landlords mean the CBRE team is constantly up-to-date and well informed of any upcoming expiries. This enables us to contact those tenants whom we know are actively looking for space and match them with suitable premises.

Tenants who are able to take a flexible approach to their property needs may also have an advantage in finding a solution in the current tight market. This could involve considering alternative locations and property sizes, or subleasing.

In all cases, we are advising occupiers to consider their property requirements well into the future, which will place them in the best position to be able to secure property to meet their upcoming needs.

For landlords who are towards the end of their lease cycle and considering selling their properties, the owner-occupier sector provides a healthy buyer market. Many businesses are looking to secure the advantage of acquiring property to enable future business growth. Our team is able to leverage CBRE’s wide-ranging relationships within the market to pair owner-occupiers with landlords looking to divest assets.