South Auckland Industrial Market Snapshot Q1 2019
South Auckland’s industrial market supply has still not caught up to underlying demand, despite total stock now nearing 5 million sqm
South Auckland’s industrial market (Airport Corridor, East Tamaki, Manukau/Wiri) remains in growth mode, stimulated by demand for new and larger premises. Despite a net gain in stock of about 39,000 sqm over the back end of 2018, we have seen a drop in total vacancy from 1.6% at 1H18 to 1.4% in 2H18. This is the lowest level since our records began in 1993.
As new stock is delivered over the next 12-36 months, we expect some moderation in the vacancy rate. Notwithstanding, reduced supply due to rising development costs will remain a persistent issue for the Auckland industrial market and will keep vacancy rates historically low.
Supply has not caught up to underlying demand, despite total stock now nearing 5 million sqm. One of the key projects within the development pipeline is a distribution centre for Foodstuffs within the Airport Precinct. On completion, the development will add 65,000 sqm to the Auckland International Airport (AIA) portfolio in 2020. Looking forward, Logos has purchased a 10-hectare site in Wiri with plans to develop a $200 million industrial logistics estate, now underway.
Industrial rents in South Auckland continue to increase, with average prime blended rental rates reaching $163 psm, up from $160 psm in 4Q18. Following the lift in prime rents, secondary blended rental rates rose to $127 psm from $125 psm over the same period.
South Auckland yields remained static this quarter with the average prime yields at 5.38% from 4Q18, while secondary yields sat at 6.50%.
Yields are forecast to remain low for both prime and secondary industrial assets, however we do not expect much further compression as we believe the market will factor in lower potential future rental growth in due course. We feel this will increase net initial yield requirement for investors.