New Zealand industrial property market review for 2019 and forecast for 2020

Globally, many favour the defensive characteristics and positive aspects supporting the growth of the industrial sector, and New Zealand is no different.

At the heart of the industrial sector, goods-producing industries such as manufacturing and construction now account for around one-fifth of New Zealand’s $300 billion economy, according to Statistics New Zealand. However, this is boosted by other services such as transport, warehousing and postal services, an industry showing another year of growth. Additional depth comes from rising public infrastructure spend.

Employment levels in the industrial sector are solid, and latest forecasts from MBIE show further strong gains over the next few years. This supports the absorption of industrial land and buildings.

In the North Island, the ‘Golden Triangle’ between Auckland, Hamilton and Tauranga will continue to rise as a popular occupier, owner-occupier and investor destination. The interconnection of population, ports and infrastructure is a strong driver for the sector. Land availability at suitable prices to be profitable was an ongoing battle in 2019 requiring plenty of careful consideration.

Experienced, well-funded stakeholders are looking to capitalise in this space and forge on with developments. Hawke’s Bay, Rotorua, Palmerston North and New Plymouth are showing positive signs in leasing activity. Prime premises are understandably the most desired, creating hotspots of activity. New construction is apparent, but typically caters for precommitted enquiry in the larger markets.

Wellington’s industrial sector continues to forge ahead, but more new-build activity is needed to alleviate supply shortages. Access to new precincts could reduce the imbalances, but new infrastructure connections are needed.

In the South Island, Christchurch’s industrial sector’s ongoing recalibration provides a more balanced demand and supply profile which has seen rent remain relatively steady over the past few years. The lack of available development sites in Queenstown and Dunedin as well as the pressure on existing sites continue to push rents higher.

From a sales perspective, the industrial sector accounts for approximately 50 per cent of all commercial and industrial sales activity annually in New Zealand. This provides investors with plenty of entry and exit opportunities. Further, rising rents, limited incentives and pent-up investor demand are driving average prime yields down, now typically ranging between 5 per cent and 6.5 per cent, but some are below 5 per cent. Purchaser interest is growing for well-positioned, add-value secondary premises.

Colliers International Research’s Investor Confidence Survey shows respondent expectations for industrial next year remain as strong as ever. Therefore, the outlook under current conditions showcases another positive year ahead.

Read the full series:
New Zealand office property market - 2019 review and 2020 forecast
New Zealand retail property market - 2019 review and 2020 forecast