Queenstown industrial property defying national trends

Industrial property in Queenstown is going from strength to strength, with vacancy, rent growth and investor demand charging ahead.

Latest CBRE research shows the extremely limited supply of land and industrial facilities, with Frankton in particular under very strong demand from both occupiers and investors, has resulted in a rate of growth which defies national trends.

David Tristram, Director in CBRE’s Queenstown valuation & advisory services team, said that while transaction activity is muted in the local office and retail sectors, industrial properties have continued to change hands and values have solidified.

“Since late last year we’ve seen investment metrics gather more strength in Queenstown industrial property, in contrast to the trend in most centres around the country where values have plateaued or softened as investors held off buying over the past few years.”

Values have stayed at elevated levels through the downturn, with Queenstown industrial properties continuing to change hands at or below 5% yields – levels which have been rarely achieved anywhere in the country since the market peak of late 2021/early 2022.

Buyer demand and activity has been concentrated in the sub $5m price bracket and is largely driven by owner-occupiers looking to secure business premises in Queenstown, with investors also active in the market. 

Buyers are considering the scarcity of industrial-zoned land, strong tenant demand and extremely limited availability of space, which has resulted in significant rental growth over the past few years, and are taking a positive outlook on further value growth. 

An increase in industrial property supply could moderate the market outlook, however the timing for the development of proposed new industrial estates in Queenstown is still unclear. 

Some occupiers are opting to move to Cromwell if there is no material impact on their business in losing their Queenstown presence, especially larger logistics occupiers who can benefit from being more centrally located to service the wider Central Otago region, he said.

“Cromwell is now well-established as a logistics hub with large-scale land parcels available for warehousing & transport hubs, which has contributed to the town’s own growth story.”

In the office property market, there is limited availability of space in Frankton, resulting in low vacancy and increases in rents. Frankton has become a preferred location for many occupiers owing to its newer buildings and better accessibility and parking than the town centre. Higher gross occupancy costs for tenants in the town centre also contribute to Frankton’s attractiveness.

Retail space in the town centre is under very high demand, although rents appear to have stabilised or moderated, showing limited growth since the peak levels reached in 2023, said Jorge Chang Urrea, Research Manager at CBRE.

“Queenstown CBD rents are highly sensitive to location, with rents substantially lower for space outside the core prime retail area reflecting the ongoing challenges to consumer spending.”

Prime town centre retail space commands upwards of $2,500 a square metre.

There is strong investment demand for prime Queenstown CBD retail assets, with very low vacancy now re-established following a period of tenant churn since the pandemic. 

Property is changing hands at very low yields (around 3.5% to 4.5%) for prime town centre retail assets - lower than in most other main centres, reflecting the investor demand for ‘trophy’ central Queenstown property.

Frankton retail space is also well-leased, servicing a mainly local customer base with convenient access and parking.

“Overall, Queenstown still has solid long term investment fundamentals, especially with the resurgence in tourism providing a strong economic driver once again. Ultimately, the region’s natural beauty remaining a strong drawcard for visitors, combined with the constrained supply of land and good occupier demand across most property sectors is expected to continue supporting values,” said Tristram.