Uptake of industrial land across Auckland has fallen to its lowest level for over a decade. According to Darroch Research's latest industrial land survey, just 10ha of industrial land was absorbed for new development in the year to June 2010 – down
Uptake of industrial land across Auckland has fallen to its lowest level for over a decade.
According to Darroch Research’s latest industrial land survey, just 10ha of industrial land was absorbed for new development in the year to June 2010 – down from 60ha in the year to June 2008.
The decline in land uptake illustrates just how hard the industrial development market has been hit by the economic and property market downturn over the last three years. In North Shore, Waitakere and Auckland cities, uptake was slightly higher than 6ha, while in Manukau City Council data shows just 4ha was taken up for development; the lowest level recorded in that city for 15 years.
A number of factors continue to constrain new development activity including the subdued economic recovery, volatile business confidence, tight lending controls, weak occupier demand, and rising vacancies in the existing building stock, Darroch says.
Industrial vacancy rates across Auckland have risen over the past three years but that rate of increase has recently slowed. Nevertheless, industrial occupiers still have plenty of choice, mitigating the need for new accommodation. Moreover, many industrial businesses are still operating in a climate of fiscal constraint and are unwilling to pay the much higher rents associated with new premises.
The number of new industrial building consents issued in Auckland has continued to decline over the last year, falling from 165 in the year to June 2009 to 122 in the year to June 2010, a decline of 26%.
In the June 2005 and 2006 years, industrial building consents numbered 305 and 280 respectively, indicating new industrial consents are now around half what they were at the peak of the cycle.
Over the past year, uptake of industrial land across all four of the major Auckland local authorities has been weak but the Manukau result is particularly significant, given that, in the five years leading up to the 2007 credit crunch, 340ha of industrial land was absorbed in that city alone. Reduced demand has resulted in the re-pricing of industrial land across the region.
Weak demand for vacant land and a corresponding fall in land values is symptomatic of a post-recession market, Darroch says.
It occurred in the aftermath of the 1987 share market crash, then again after the 1997 Asian crisis, and has happened post 2007. It forms part of the economic cycle of “recovery.”
Downward pressure on industrial land prices has been a major factor in the market over the past 24 months, Darroch’s report says. Lower land prices typically play a role in helping revive the development market.
If a developer can secure land (the base cost for any building project) at a lower price, this in turn reduces the rent required to achieve feasibility. Over the past six months, despite relatively few sales, Darroch’s analyses suggest land values may be stabilising. However, it is likely to require another six months before a clearer trend emerges.
In total, close to 650ha of industrial land is available for further development in the four main cities of the region. This comprises 400ha of land classified as “unimproved” or “fully vacant,” with a further 250ha categorised as “partially vacant” or is being used in a yard capacity or as temporary storage but has further development potential. Manukau City holds around 50% of the total supply remaining and Waitakere 30%. Supply in Auckland City and particularly North Shore City (20ha) is at low levels.
