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News Release

Auckland

Limited stock and high demand driving up industrial rents


 

 

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Occupier demand backed by stronger economic performance is being felt in the Auckland Industrial market, triggering new development and moving rental levels higher. Industrial rentals for the majority of areas across Auckland are continuing to increase resulting from rising levels of tenant activity and falling vacancy levels.

Strong competition between occupiers for space means that landlords are now in a position to drive increases in rentals along with dropping off incentives. This has recently started to filter down through to the secondary market where there has been an increase in rents for the first time since 2010.

National Director of JLL Industrial Sam Smith says that the main point of focus however is the secondary market, “Landlords are now in a controlling position relative to tenants which is driving strong rental growth, especially in the secondary end of the market.”

Smith adds, “Until now there has been very little movement in the JLL series for prime industrial rents in the last 5 years but we are now seeing a significant increase in secondary rental figures.”

Recent research conducted by JLL states that prime and secondary rents are now near the highs that were last seen before the Global Financial Crisis, averaging NZD130 per square metre and NZD104 per square metre respectively. Prime rental figures increased 2.2% during the first half of 2015 while secondary rental figures increased by 10.6%. Across most precincts, property owners have been able to increase both the office and warehouse asking rents and in some cases reaching double digit growth, a feat that has not been seen since the early 2000’s.

Industrial vacancy across the Auckland region is continuing to fall and is now at 2.9%. Occupiers are now being forced into lower grade and secondary premises, with options remaining limited. This has ultimately led rentals higher with secondary rents seeing a marked increase from 2014 levels.

“We are finding that occupiers are now steering toward secondary stock opportunities and in some cases where they cannot find a suitable option they are forced to look for build-to-suit options to supply their accommodation needs,” says Smith.

With strengthening rents and diminishing options for occupiers there has been a continued drive in new build development in the industrial market. An increasing number of these new developments are speculative in nature with developers more confident of tenant demand and leasing conditions in the Auckland market. 

Ben Curran, industrial sales and leasing agent who specialises in South Auckland says, “The demand for new build space remains healthy and the majority of new development is still primarily focussed in Auckland’s southern markets. This is not surprising given the fact that this is where the vast majority of greenfield development land is located.”

Roughly 61,000sqm of new build space entered the industrial market over the first half of the year with notable developments including Duplex and Flex 2 in the Auckland airport precinct and Goodman’s speculative builds at Highbrook which will provide 3,000 and 6,000sqm warehouses, due for completion end of 2015. 

A number of new developments will provide some relief to the critical shortage of stock with over 105,000sqm currently under construction. This figure is expected to increase over the coming year, as more space is demand by occupiers. 

Curran adds, “This is likely to release some of the demand pressure that currently exists and provide more options to occupiers that are unable to find adequate space.”

With strong underlying economic fundamentals, occupier interest is expected to keep vacancy at current levels and in turn push rental values higher, keeping landlords in a commanding position relative to occupiers.