South Auckland Industrial Market Snapshot Q3 2019

Demand

There has been a slight increase in vacancy over 1H19 with South Auckland’s industrial rate increasing 46 bps to 1.8%. This is on par with the total Auckland industrial vacancy rate of 1.9%. These historically low vacancy rates matched with low increases in supply becoming available has resulted in significant demand for South Auckland’s industrial buildings, especially in the East Tamaki area with a vacancy rate of just 1.6%. Although we have not undertaken a new vacancy survey in 3Q, we do not believe there have been any structural changes to occupancy rates in this quarter.

We expect to see some softening of the vacancy rates as new developments become available, although progression into the construction phases will be monitored carefully as costs continue to fluctuate.

Supply

Forecasts are predicting the total stock figure to reach 5 million sqm by at least mid-2020. This will hopefully ease some of the demand resulting from the low vacancy rates. Much of the supply in the development pipeline is set to be built for specific tenants.

An example of new stock is the distribution centre and 3-storey office block for Foodstuffs currently underway with building consents issued at the beginning of 2019. This development is set to add 65,000 sqm to the stock base in 1H21 at Ihumatao Road.

Asset Performance

Combined industrial rents in South Auckland continue to rise with the average prime combined rate sitting at $165 psm and secondary at $131 psm. These figures are on par with Auckland Central industrial prime and secondary rental rates.

Yields have lowered in the last quarter with average prime yields sitting at 5.13% and secondary at 6.13% (down 25bps and 37 bps from 2Q19 respectively). A slight firming of yields is expected as the stock coming up for sale remains minimal but is forecast to soften in the short to medium term.

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