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INDUSTRIAL
RESEARCH REPORT 2017
AUCKL AND
The Auckland industrial market has remained relatively undeterred moving into the second half of 2017.
The positive outlook has been underpinned by strong investor confidence, an accommodative low interest rate environment and
competition between owner occupiers and investors which continues to drive this sector.
Demand Outstripping Supply
A shortage of good quality stock has Conversely, East Tamaki and Airport % of Properties
CHART per
TITLESuburb
resulted in the stabilisation of record Oaks increased slightly at 0.8% and Airport
Penrose
9%
low vacancy levels across the major 0.6% respectively which we believe is 14%
industrial hubs and in turn created attributed to a number of new industrial
pressure for a rise in market rental developments brought to the market Manukau/
Wiri
levels. The under supply of stock has been 16%
Onehunga
seen across all grades of industrial 14%
Vacancy levels have contracted property prompting investors, owner
throughout the central suburbs. occupiers and budding tenants further
Penrose/Onehunga has dropped down the investment grade toward Mt
0.8% from our analysis a year ago, alternative properties, as competition Wellington
13%
whilst Mt. Wellington and Manukau/ has turned up or alternatively with the
Wiri have shown slight decreases at option of remaining idle until more
East Tamaki
0.2% and 0.6% respectively. opportunities arise. 34%
INDUSTRIAL RESEARCH REPORT 2017 1
Tenants be Wary
The evident shortage has led to a occupiers down the grade scale Vacancy by Suburb - August 2017
steady increase in rental levels over into more secondary stock,
the past few months, as competition with the occupiers settling from 4.00%
increases for existing quality space refurbishment of dated space, if
that accommodates tenant needs. required. 3.50%
3.00%
Our analysis of industrial properties Secondary South Auckland
shows that within the South-Central precincts are generally returning 2.50%
suburbs properties ranging from 100 from $85 to $110 per square metre 2.00%
to 500 square metres have shown an over warehouses. Incentives have
increase in rent of 5.0% overall from not been frequently noted however 1.50%
2016 to 2017. we are seeing a shift towards more 1.00%
stepped rental agreements, given
Knight Frank is aware of newly built the uncertainty associated with CPI 0.50%
industrial properties achieving rental movements and the low inflationary 0.00%
levels of $140 per square metre, environment prompting landlords Penrose / East Mount Manukau / Airport
Onehunga Tamaki Wellington Wiri Corridor
over medium sized warehouse for more security going forward.
components with smaller industrial
units achieving in excess of $170 per
square metre overall. 2017 Vacancy Outlook
Suburb Vacancy m² Total Stock m² August 2017 - Percentage
Newly built industrial office space has
Penrose/Onehunga 19,658 1,836,867 1.07
also been recording returns of up to
$240 per square metre. East Tamaki 75,190 2,156,512 3.49
Mount Wellington 11,559 1,140,480 1.01
Higher rentals rates have had the Manukau/ Wiri 25,578 1,442,615 1.77
effect of pushing investors and
Airport 26,301 1,039,359 2.53
Auckland Building Consent Values - Factories, Industrial and Storage
$400,000,000
$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$-
2013 2014 2015 2016 2017 Year Ending 30 June
Development
Landlords controlling supply are until conditions improve or pushing following the change in the Unitary Plan
considered instrumental to further developments further southward and pre-existing developments have
development. where the development margins justify undermined this.
the capital investment.
Rising land values and construction Furthermore, financial constraints
costs in addition to construction Building consents have dropped from continue to affect the future pipeline
labour constraints evident throughout levels seen in 2016 whilst speculative of new builds with construction costs
the entire Auckland market, have stock gets built and absorbed by the forecast to remain elevated in the short
resulted in landlords either holding market. A shortage of industrial land term hovering at around 5.0%.
2 INDUSTRIAL RESEARCH REPORT 2017
Impacts of the Unitary plan
The Auckland Unitary Plan became This has been most evident in more pushed land values in excess of $3,000
operative in part in November 2016. centrally located suburbs around per square metre in neighbourhoods
the fringe of the Auckland Central such as Eden Terrace, Grey Lynn and
The impact has been profound Grafton reflective of the level of housing
Business District.
on properties that formerly had an achievable in those areas.
industrial use and have now been The consequence of these changes
subject to a change in zoning to either are that industrial users are now Southern Corridor suburbs are generally
Mixed Use or Terraced Housing and competing with residential developers achieving in excess of $1,000 per square
for these properties which has metre relative to their particular zoning.
Apartments.
South Auckland - Prime Industrial $ psm Rates
$300
Office Warehouse
$250
$200
$150
$100
$50
$0
2013 2014 2015 2016 2017 2018 (F)
INDUSTRIAL RESEARCH REPORT 2017 3
Power of the Dollar
The attractiveness of industrial has recorded substantial increases notably less sales publicly advertised
property has seen yields contract. year on year out for units between 100 than in previous years.
This has been fuelled in part by the to 500 square metres.
low interest rate environment, strong Knight Frank has been involved in multi-
investor confidence and demand. On a per square metre basis industrial unit industrial developments where
units increased from an average of new units at 22 Polaris Place and 417
Knight Frank has recently sold a just under $2,000 psm in 2015 to just East Tamaki Road, East Tamaki have
1980s industrial building at 12- over $2,750 psm in 2016 representing achieved consistently over $3,300 per
16 Harris Road, East Tamaki for appreciation of 39.7%. square metre on average.
$4,750,000 in July 2017, reflecting an
initial yield of 5.64% on a two year The current year has continued to be This shows the considerable popularity
leaseback. strong with an average of $3,200 per of industrial units in addition to the
square metre however there have been generally limited supply.
This sale demonstrates the
desirability of industrial space even South Auckland - Average A-Grade Industrial Yield
with a limited lease term in place.
9.5%
Competition for quality space 9.0%
between owner occupiers and 8.5%
investors continues to contract 8.0%
yields. Our analysis is finding
7.5%
that market equivalent yields are
achieving in the range from 5.0% to 7.0%
6.5%. 6.5%
6.0%
This is calculated with an 5.5%
assessment of market net income
5.0%
over the sale price with adjustments
made for over/under renting, 4.5%
vacancy and capital expenditure. 4.0%
In industrial unit market our analysis 2012 2013 2014 2015 2016 2017 2018 (F)
Examples of Industrial Sales and Investment Yields
Address Price Floor Area Yield% Date Prime/Secondary
90 Lady Ruby Drive, East Tamaki $1,930,000 724 5.70 Mar 17 Secondary
12 - 16 Harris Road, East Tamaki $4,750,000 2,289 5.64 Jul 17 Secondary
5 Greenmount Drive, East Tamaki $4,050,000 2,748 6.04 Mar 17 Secondary
3 Stonehill Drive, Wiri $7,025,000 2,301 4.86 May 17 Prime
46 Andrew Baxter Dr, Airport Oaks $3,900,000 1,816 5.08 Mar 17 Prime
11 Turin Place, Otara $14,233,077 8,565 6.50 Dec 16 Secondary
100 Carbine Road, Mt Wellington $36,800,000 29,526 V/P Jun 17 Secondary
154 Captain Springs Rd, Onehunga $2,476,000 1,321 4.93 May 17 Secondary
60 Johnston Drive, Penrose $5,560,000 1,117 6.72 Feb 17 Secondary
3 Donnor Place, Mt Wellington $4,300,000 1,600 5.52 April 17 Secondary
Market Analysis
Warehouse Office Market Yield Land Value
Prime Secondary Prime Secondary Prime Secondary Less 1ha More 1ha
Penrose/Onehunga $120 - $135 $85 - $110 $220 - $250 $175 - $215 5.50 - 6.25% 6.25 - 7.00% $550 - $650 $450 - $550
East Tamaki $105 -$130 $80 - $100 $190 - $240 $150 - $185 5.25 - 6.00% 6.00 - 6.75% $525 - $575 $400 - $525
Mount Wellington $120 - $130 $85 - $105 $220 - $240 $175 - $215 5.50 - 6.25% 6.25 - 7.00% $550 - $600 $450 - $550
Maunkau/Wiri $105 - $130 $85 - $95 $190 - $235 $155 - $175 5.00 - 5.75% 5.75 - 6.50% $475 - $625 $400 - $475
Airport Oaks $110 - $125 $85 - $100 $190 - $240 $160 - $185 5.25 - 6.00% 6.00 - 7.00% $500 - $600 $400 - $500
4 INDUSTRIAL RESEARCH REPORT 2017
2017 TRENDS
CANTERBURY
General building consent trends
are on the decline in 2017 for
industrial property following the
post-earthquake peak, however
BUILDING CONSENT ACTIVITY
they remain stronger than pre-
earthquake levels.
Following the steady increase Building consent numbers across
of building consent values in property sectors rose from the
Investor demand remains strong Canterbury post-earthquake, we period of 2010 - 2015, however, have
for quality, well leased space, but are now seeing a decline in value since declined. On average, the
sale volumes have been steadily levels over the past year across office sector has the highest number
declining since 2015. There is most property sectors, except of consents per quarter with storage
caution in the market with investors for storage which appears to be and industrial sectors close behind.
taking more time for due diligence increasing. Building consent values Since the first quarter of 2010 the
and being more selective. for the industrial sector have ranged number of consents per quarter for
from $9,950,000 to $54,402,900 per industrial buildings has ranged from
Yields are trending down as interest quarter since the start of 2011. 11 to 36.
rates remain low.
Quarter two of 2017 saw a decrease There was a decrease in industrial
to $20,101,400 from $21,182,058 consent numbers to 18 in quarter
Increase in the number and amount in quarter one, this was also down two of 2017 from 20 in quarter one
of available industrial space for lease. from $23,075,650 in quarter two 2017. Overall, the general trend
2016. New supply continues to filter for building consent numbers
Rental levels are unlikely to see into the market, however the general across all sectors is on the decline,
further growth in the short term, with consent trends reflect a market though remains stronger than pre-
possible decreases in rental rates for which is returning to base levels earthquake levels.
secondary and lower quality space. after significant post-earthquake
activity, and we expect development
activity to slow over the remainder
of 2017 and 2018.
INDUSTRIAL RESEARCH REPORT 2017 5
Building Consent Activity
Building Consent Values Canterbury - Source: Statistics NZ
300,000,000
Hotel Retail Office Storage Industrial
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
2010Q1-2
2010Q3-4
2011Q1-2
2011Q3-4
2012Q1-2
2012Q3-4
2013Q1-2
2013Q3-4
2014Q1-2
2014Q3-4
2015Q1-2
2015Q3-4
2016Q1-2
2016Q3-4
2017Q1-2
Building Consent Values Canterbury - Industrial - Source: Statistics NZ
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
Building Consent Numbers Canterbury - Source: Statistics NZ
300,000,000
80
Hotel Hotel Retail
Retail Office
Office Storage
Storage Industrial
Industrial
70
250,000,000
60
200,000,000
50
150,000,000
40
30
100,000,000
20
50,000,000
10
0
0
2010Q1-2
2010Q3-4
2011Q1-2
2011Q3-4
2012Q1-2
2012Q3-4
2013Q1-2
2013Q3-4
2014Q1-2
2014Q3-4
2015Q1-2
2015Q3-4
2016Q1-2
2016Q3-4
2017Q1-2
2010Q1-2
2010Q3-4
2011Q1-2
2011Q3-4
2012Q1-2
2012Q3-4
2013Q1-2
2013Q3-4
2014Q1-2
2014Q3-4
2015Q1-2
2015Q3-4
2016Q1-2
2016Q3-4
2017Q1-2
6 INDUSTRIAL RESEARCH REPORT 2017Tenant Demand
Occupier Demand and Rents
There has been an increase in the supply is currently outweighing Another in Canada Crescent has
supply of industrial buildings over the demand. been leased at an effective net rent
past 12 months. of $115,000, compared to a 2014
Some landlords have been prepared to assessment of $205,000.
We have also seen a reversion to
heavily discount from rents previously
original use for industrial buildings In 2017 prime rents for warehouse
payable in order to secure new
that had previously been converted space typically range from $90 - $110
tenants.
to other uses such as offices, in the per square metre, with secondary
period of displacement following the space ranging from $65 - $90.
Examples include a building in
earthquakes.
Clarence St, recently leased at Looking ahead rental levels are unlikely
This is expected to continue, albeit $140,000 pa, down from $167,200 to see further growth in the short term.
at a slower pace until 2021, when the payable from late 2011.
policy for temporary businesses that
do not comply with the rules in the
Christchurch District Plan expires. Sample of new warehouse leases in the rental market
Address Rent $/m² Area m² Term (years)
Additionally, some tenants are
relocating and downsizing due to Iversen Terrace, Waltham $80 646 2
increases in online sales, coupled Antigua Street, Addington $85 1,827 3
with competitive new build prices, Nga Mahi Road, Sockburn $100 1,800 6
allowing businesses the opportunity of
Branston Street, Hornby $95 962 6
a bespoke building for less cost.
Waltham Road, Sydenham $100 774 3
Consequently, we have observed
Jones Road, Rolleston $105 252 3
a softening in rental rates and an
increase in incentives, given that Avenger Crescent, Wigram $120 260 2
Cumulative Growth Christchurch Industrial Rentals
Knight Frank has monitored rental the period just prior to the earthquakes. since 2014. We are now seeing a
growth in the main industrial locations Post-earthquake rents again increased downward trend in rental growth
since 1993. Strong growth occurred at some pace, however appeared to profiles, given the current levels of
through the early to mid-2000’s, with then flatten over the previous three-year supply being in favour of tenants.
some levelling off and dropping during period, remaining largely unchanged
Cumulative Industrial Rent Growth by Location
180%
Hornby Bromley Sydenham Middleton
160%
140%
120%
100%
80%
60%
40%
20%
0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-20%
INDUSTRIAL RESEARCH REPORT 2017 7Tenant Demand
Cummulative Growth Capital Values Christchurch Industrial Property
Cumulative growth of capital values in the rate of increase has been slowing This slight downturn in values is
Christchurch underwent strong growth and in some areas declining between occurring due to reduction in market rent
throughout the early and mid-2000’s, 2016 - 2017. levels, rather than increases in yields or
levelling out across the period of 2007- capitalisation rates which remain firm in a
The strongest areas of growth continue
2009. low interest rate environment.
to be in the western suburbs of Hornby
Values again underwent an increase and Middleton, where new industrial
post-earthquakes, however, subdivisions are developing.
Cumulative Growth - Capital Values Christchurch Industrial Property
180%
Hornby Bromley Sydenham Middleton
160%
140%
120%
100%
80%
60%
40%
20%
0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-20%
8 INDUSTRIAL RESEARCH REPORT 2017Investor Demand
Sales and Investment Yields
Sales volumes are down considerably There appears to be some caution in selective with increased concern
from the elevated levels recorded in the market, with investors taking more regarding vacancies. Banks have also
2015. time for due diligence and being more imposed tighter financing restrictions.
Prime industrial yields in 2017 generally Examples of analysed yields from recent warehouse transactions
ranged from 6.0% to 7.00%, with
Address Price Building Area Yield
secondary yields ranging from 7.00%
to 9.00%. Tanner Street, Woolston $360,000 142 8.16%
Parkhouse Road, Sockburn $830,000 344 7.17%
In 2016 there was a consistent trend of Blenheim Road, Sockburn $755,000 460 6.70%
low yields and we are again seeing this
Phillips Street, Phillipstown $825,000 640 6.66%
in 2017.
Buchan Street, Sydenham $1,115,000 1,760 8.16%
There remains strong demand for good Alloy Street, Sockburn $1,504,000 546 6.12%
quality industrial investment property, Dakota Crescent, Wigram $2,825,000 1,912 6.55%
particularly new builds at new building
Waterloo Road, Hornby $4,100,000 1,400 6.00%
codes with strong tenancies in place,
and less demand for secondary stock. Epsom Road, Sockburn $1,200,000 482 6.25%
Number of Industrial Sales in Christchurch
The number of industrial sales has Number of Sales
fluctuated year to year, with a spike in
sales over the post-earthquake period 300
of 2013 through to 2015 with numbers
peaking at 270 in 2015, averaging 23 250
sales per month.
200
In the year to date, we have seen 71
industrial properties sold, averaging
10 sales per month, the lowest annual 150
number recorded since the year 2000.
100
This decrease in turnover is
predominantly due to the limited supply
50
of good quality industrial space on
the market, and concern surrounding
the opportunities available for further 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
capital gain following increased
appreciation in recent years.
INDUSTRIAL RESEARCH REPORT 2017 9Investor Demand
Snapshot For Lease on the Market in the Main Industrial Locations
Excluding Rolleston and Central City
Knight Frank researched Industrial This compares with August 2016 completed industrial developments
property on the market for lease as at when we found 351 properties on coming onto the market across the
August 2017 and found approximately the market for lease, approximating city, coupled with the expiry of six year
368 properties actively being 307,162 square metres of space. leases that commenced immediately
marketed, reflecting approximately The increase in properties for lease following the earthquakes. The graph
321,488 square metres of floor space. is predominately due to newly shows where this space was available:
Area For Lease
80,000
2016 2017
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
Harewood
Middleton
Riccarton
Sydenham
Wainoni
Halswell
Woolston
Russley
Sockburn
Addington
Bromley
Ferrymead
Phillipstown
Opawa
Hillsborough
Hornby
Wigram
Waltham
Snapshot For Lease on the Market in the Main Industrial Locations
Excluding Rolleston and Central City
Number For Lease
60
2016 2017
50
40
30
20
10
-
Harewood
Middleton
Riccarton
Sydenham
Wainoni
Halswell
Woolston
Russley
Sockburn
Addington
Bromley
Ferrymead
Phillipstown
Opawa
Hillsborough
Hornby
Wigram
Waltham
10 INDUSTRIAL RESEARCH REPORT 2017Development
RESEARCH
Rachel McElwee
Head of Research
Capital Markets
Activity
+64 21 569 945
rachel.mcelwee@nz.knightfrank.com
INDUSTRIAL
David Arlidge
Knight Frank has monitored take up of significant uncertainty in the market Senior Director - Auckland
+64 21 463 878
vacant land in Christchurch since 1993. and in land conditions. david.arlidge@nz.knightfrank.com
Vacant Land is defined in the City Plan Levels of take up have picked up since
Campbell Taylor
as undeveloped areas where potential the earthquakes from 6.1 hectares Senior Director - Christchurch
future development is allowed. Take up in June 2010, to 26 hectares in June +64 27 433 4703
occurs when a new building or resource 2017 of vacant industrial land taken campbell.taylor@nz.knightfrank.com
consent, public works or parks and up by new industrial buildings, the VALUATIONS
reserve contribution is lodged against a majority of which was in the South
Tim Gemmell
parcel of vacant industrial land. West of the city. Land supply for new Senior Director - Auckland
developments as a factor of land value +64 21 987 955
The majority of land take-up has been growth has been removed with the tim.gemmell@nz.knightfrank.com
and continues to be in the West of the decisions relating to land rezoning Will Blake
city. There was a significant reduction effectively increasing the supply of land Senior Director - Christchurch
+64 27 229 7457
in development activity during 2008 to for business uses. william.blake@nz.knightfrank.com
2010, a result of the Global Financial
Crisis coupled with a scarcity of We see limited pressure on land prices NATIONAL
available land. The period from 2010 to to increase at present while increases Layne Harwood
2012 resulted in low levels of industrial in construction costs remain the Country Head
+64 21 630 136
land take up following the Christchurch strongest driver of growth. layne.harwood@nz.knightfrank.com
Earthquakes, when there was
Vacant Industrial Land
1000.00
1000.00
WestWest EastEast North Syd/InnerTotalTotalWestWest
NorthSyd/Inner as %asTotal
% Total
900.00
900.00
800.00
800.00
700.00
700.00
600.00
600.00
500.00
500.00
400.00
400.00
300.00
300.00
200.00
200.00
100.00
100.00
0.00 0.00
20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012 20132013 20142014 20152015 20162016 20172017
WestWest 194.62
194.62 182.49
182.49 198.16
198.16 307.14
307.14 300.06
300.06 318.59
318.59 311.86
311.86 303.13
303.13 329.95
329.95 301.20
301.20 305.78
305.78 469.90
469.90 499.24
499.24 639.50
639.50
EastEast Conclusion
57.8157.81 55.1755.17 49.9949.99 44.4244.42 38.1538.15 35.0835.08 63.4063.40 60.8660.86 58.5658.56 48.9948.99
RECENT50.3450.34 78.50 78.07
MARKET-LEADING
78.50 78.07 70.4870.48
North
North 85.1485.14 83.7983.79 76.7276.72 72.38
72.38 66.3866.38 66.74
66.74 68.1268.12 66.2066.20 66.57
66.57139.85
139.85
RESEARCH 139.7087.80
139.70 87.80 95.99
PUBLICATIONS 95.99229.63
229.63
Overall,6.03
Syd/Inner
Syd/Inner the6.03
strength of the
6.82 6.82 7.58 7.58 5.94 5.94 concerns going
4.92 4.92 4.35 4.35 forward
4.55 4.55 but
4.25the
4.25 3.96 3.96 0.66 0.66 0.66 0.66 8.60 8.60 7.15 7.15 7.23 7.23
TotalTotal New Zealand
343.60 economy
343.60
328.27 bodes
328.27
332.45 well
332.45 for
429.88
429.88 fundamentals
409.52
409.52 424.75 have
424.75 not
447.92 changed.
447.92 434.43
434.43 459.03
459.03 490.70
490.70 496.48
496.48 644.80
644.80 680.45
680.45 946.84
946.84
WestWest
industrial
as %asTotal
% Total property heading into
57%57% 56%56% 60%60% 71%71% A 73% 73%
low 75%75%
interest 70%
rate 70% 70%70% 72%72% 61%61% 62%62% 73%73% 73%73% 68%68%
environment,
2018.
strong investor confidence and
Election uncertainty and potential steady competition continues to make
measures such as Debt to Income the commercial market an attractive
controls by the Reserve Bank of place for both owner occupiers and
New Zealand present some minor investors.
KFNZ Ltd t/a Knight Frank provide content for general information purposes only, and
do not purport to contain all of the information that a prospective client may require. In
addition, the information you have received has been provided to Knight Frank by the
vendor or landlord and Knight Frank does not guarantee its accuracy.Knight Frank has not
undertaken an independent review of this information and prospective clients must make
their own enquiries to satisfy themselves as to its accuracy. To the extent permitted by law,
Knight Frank expressly disclaims any liability for any loss or damage which may arise out of
any person acting on or relying upon any part of the information you have received. Areas,
amounts, measurements, distances, and all other numerical information are approximate
only. Any photographs show only certain parts of the property as it appeared at the time they
were taken. Except where otherwise provided all references to rent, income or price are GST
exclusive unless otherwise stated.
KFNZ Ltd t/a Knight Frank LA (REAA 2008) MREINZ INDUSTRIAL RESEARCH REPORT 2017KnightFrank.co.nz 12 INDUSTRIAL RESEARCH REPORT 2017
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