Crane boom reflects a lift in building activity

The buoyant commercial and industrial property market conditions experienced in 2014 are expected to continue in 2015 – with a number of key factors driving strong growth in Auckland, Bayleys Real Estate commercial property national director John Church says.

“One of the best indicators of property market confidence and activity is the quantity of cranes that can be spotted across a city’s skyline,” Mr Church says in Bayleys’ latest Greater Auckland property portfolio.

“In this respect, it has been encouraging to see the increasing number of cranes dotted around key commercial and industrial property locations in Auckland over the past year.”

The latest bi-annual Rider Levett Bucknall Crane Index, released in September, recorded 26 cranes in action in Auckland – less than the 31 being used in the Christchurch rebuild but well ahead of the next locations of Hamilton with seven and Wellington with six. 

“Many more cranes are expected to spring up around the region over the next three years as we experience one of the biggest sustained construction booms in many decades – led by Auckland,” Mr Church says. 

Although building activity is expected to peak in Christchurch this year, according to a National Construction Pipeline report, construction work in Auckland will keep climbing significantly until 2017. It will then flatten off a little but remain at very healthy levels at least until 2020.

 “This is good news for the Auckland commercial property market as it will create new investment opportunities, attract investment capital and help sustain the strong level of activity that was a feature of the market last year,” Mr Church says. 

 “Auckland is clearly where much of New Zealand’s business growth will be for the foreseeable future, and investors like to put their money into areas where there are strong growth prospects.”

This point was underlined late last year by an analysis of the geographical location of the 370 investors who bought proportionate shares in New Zealand’s largest property syndication of one of the buildings in Spark’s head office complex in central Auckland. 

Some 27% of buyers were based in Auckland, while 55% came from other parts of the North Island, and 17% from the South Island, with many located in rural areas. “When it comes to commercial property investment, people mostly go with their heads, rather than their hearts … and, like it or not, Auckland is where the commercial property action is,” Mr Church says.

“In this respect, it is good to see a significant amount of development action is happening in the heart of our city – the central business district. Most of the world’s great cities have a thriving CBD, with a mix of business, residential, retail and leisure and entertainment activities, and the wide range of projects currently under way or planned in our CBD are a good reflection of that.

“The severe shortage of prime CBD office space has been well publicised and is likely to be only partly relieved by the completion later this year of Manson TCLM’s speculative new office building in Victoria St, which is likely to lease quickly. 

“It will then be quite a while before other CBD office buildings planned by the likes of Goodman and Precinct Properties will add further significant amounts of prime office space to the market. 

“In the meantime, tenants will, by necessity, have to look for good-quality alternatives in CBD B-grade space, in the city fringe, southern corridor, and on the North Shore. This will open up opportunities and the prospect of rental growth for landlords in these sectors.”

Mr Church says the other supply bottleneck that is likely to become even more acute in Auckland this year is the shortage of affordable land zoned for industrial development. 

“As a consequence, there will continue to be strong demand for what limited supply there is. It is encouraging that the plan change needed to facilitate Stevensons’ redevelopment of rural land in South Drury into a large scale business park, catering predominantly for industrial users, has been given the go ahead. 

“From what we have seen, it’s likely to be a development of similar quality to Goodman’s Highbrook Park in East Tamaki, although twice the size, and will take some of the pressure off industrial land supply in the medium term.”

Mr Church said 2014 was a great year for the Auckland commercial and industrial property market – which ended on a high note, with 22 properties selling before, at, or shortly after, Bayleys’ last Auckland portfolio auction for the year in December. 

“The strong market conditions that prevailed in 2014 are expected to continue in 2015 given the economy is continuing to chug along nicely, interest rates are forecast to remain at historically low levels for longer and commercial and industrial property demand in many sub-sectors continuing to outstrip supply.”

Mr Church says that once again, Bayleys is the first agency out of the blocks with its inaugural Greater Auckland portfolio for 2015. 

Neil Prentice writes for Bayleys Real Estate