Wellington Industrial market snapshot Q3 2020
According to our latest 1H20 survey, the industrial market remained relatively stable with overall vacancy rates rising slightly to 3.0%. Across the board, only Petone realised a notable decline in vacancy from 3.9% in 2H19 to 2.7% in 1H20. Demand for prime industrial space in Wellington remains strong, primarily a continued side effect of the extremely limited available space. The market for secondary stock sees comparably less confidence however, as many of these buildings remain hamstrung by issues, particularly earthquake risk.
Despite the minor increase to the total stock, no new supply came to market in 1H20 as the 870 sqm addition of stock simply evidences a completed refurbishment of an existing property. We have identified only five projects underway within our survey boundaries, all of which have continued to progress through various stages of planning and construction over the quarter. Further supply remains heavily restricted as the Wellington industrial sector continues to see rising land and construction costs as well as diminishing available land. Brownfield development is also difficult due to asbestos and land contamination risks.
Supported by limited stock, prime industrial rents rose 6.7% to $160 psm over the quarter, with secondary rents rising 5.8% to $110 psm. We have also recorded some yield contraction over 3Q20 in both prime and secondary markets. Average prime gross yields firmed slightly to 7.06% from 7.30% in 2Q20, while average secondary gross yields firmed to 8.56% from 8.75% last quarter. This reflects present benefits gained by the sector from limited stock as well as limited opportunity for industrial development within close proximity to key distribution nodes close to the transport network.