Auckland North Shore Industrial Market Snapshot Q3 2019

Demand

Demand for North Shore industrial space remains robust with the combined vacancy rate reaching a record low of 1.4% in 1H19. Vacancy rates for the traditional North Shore markets (Albany, Wairau Valley, North Harbour) are well below 2%. In comparison, Silverdale has a higher vacancy of 3.0% as it remains in expansion mode. JLL expects overall North Shore industrial vacancy to remain low as any fresh supply will be absorbed reasonably quickly. 

Supply

New supply in Albany, Wairau Valley and North Harbour areas remain limited due to zoning constraints and a lack of greenfield land. Supply remains focused in Silverdale as there are significantly more development opportunities. There is approximately 24,332 sqm of industrial space under construction in the North Shore, 71% of which (17,328 sqm) is within Silverdale. However, the number of projects breaking ground has continued to slide from 2018 as factors acting against development feasibility continue to weigh in. This is expected to contract further due to inflating construction and land costs. 

Asset Performance

Rental rates have remained unchanged for the North Shore industrial market since 2Q19, with average prime and secondary rates at $158 and $134 respectively. A divergence between prime and secondary stock has widened with only prime rents seeing growth since 4Q18. JLL expects further rental growth due to a persistent supply/demand imbalance. We are also forecasting a wider divergence between prime and secondary stock as more quality stock is supplied to meet market demand. 

Yield compression resumed after a period of inactivity, supported by strong investor interest. The average prime yield declined 25 bps to 5.13%, followed closely by secondary yields dropping 37 bps to 6.13%. A notable transaction that occurred in the North Shore was a 1,250 sqm standalone industrial building at 11 William Pickering Drive, sold for $4.52m reflecting a yield of 4.94%.