market snapshot 2Q20
As the New Zealand economy recovers, the industrial market remains relatively stable with overall vacancy rates rising slightly to 3.0%. Only Petone observed a decline, from 3.9% to 2.7% in the last six months. All other markets saw an increase. Seaview saw the highest vacancy at 3.5%, while Porirua remains the lowest in the sector at 2.0%. Beneath the positive outlook for prime stock, there is less confidence in secondary stock. Non-prime assets see a higher risk of business failure among tenants, as underlying preference for prime stock remains.
Supply bottlenecks persist due to slow market conditions, geographical constraints and rising construction costs. No new supply came to market in the last quarter and the only completion since 1Q20 was a 870 sqm refurbishment. Given the prevailing physical restrictions on industrial footprint, substantial injections of quality stock into the market appear unlikely. With little to no availability of new industrial space in Wellington, the easing of market pressure and any possibility of expansion or relocation remains a challenge for the sector over the near future.
Rents and yields for both prime and secondary industrial space have remained at 1Q20 levels: average rents were $150 and $104 psm for primary and secondary respectively. Yields remain unchanged at 7.3% for prime assets and 8.75% for secondary stock. Space remains at a premium due to the infrequency of stock turnover, while occupier demand persists. Investors remain cautious, resulting in a slight moderation in overall transaction volumes. However, the market for industrial land in and around Wellington continues to strengthen.