Wellington Industrial Market Snapshot Q3 2019
Overall vacancy rates remain low, while rental rates continue their upward trajectory, with the average prime rate now sitting at $148 psm.
Demand
Overall vacancy rates remain low, with no structural changes observed during 3Q19. Elevated demand in combination with a limited supply of quality stock has seen an increasing number of Industrial occupiers settle for secondary assets. With limited space available, occupiers are having to offer competitive terms to obtain premises.
Demand is forecast to remain stable into the foreseeable future. There are no major developments and few industrial developments overall progressing through the pipeline at this stage.
Supply
Geographical constraints, skilled and unskilled labour shortages, and rising construction costs continue to restrict supply. This is in addition to competing uses eroding available space for large projects. Supply is expected to begin expanding further afield with new transport links and stronger road infrastructure on the horizon, but until then expansion and relocation remain generally unfeasible.
Asset Performance
Rental rates have continued their upward trajectory, with the average prime rate now sitting at $148 psm. Secondary rents have seen similar growth, rising to an average of $100 psm over the quarter. This trend has been primarily driven by limited availability, with infrequent stock turnover and strong demand for prime space only exacerbating the trend further. With significant changes to the market landscape unlikely in the coming quarters, we expect this to continue.
Prime and secondary yields have both plateaued, now sitting at 7.38% and 8.75% respectively. Investor enthusiasm for the sector persists, though given the muted levels of recent sale activity and stagnating supply, little stock remains to be transacted this cycle until new developments reach their completion.
