Growing economic recovery underpins Wellington’s industrial property market

An improving economic backdrop leading to business expansion has driven down industrial property vacancy rates across the Wellington region.

Lower vacancy – particularly within modern, higher grade premises – has seen rentals begin to rise for the first time in a number of years, according to data just out from Bayleys Research. 

Bayleys senior research analyst Ian Little said vacancy across the Wellington region’s primary industrial precincts had fallen by nearly a full percentage point over the past 12 months. Overall vacancy in the 2014 survey sat at 6.4% – compared with a 2013 total of 7.4%.

“This marks the second year in a row that the vacancy rate has fallen – having experienced six years of increases from 2006. Vacancy now sits at its lowest level since 2010 when the overall figure was 6.15%,” Mr Little says.

“The fall in vacancy has resulted in upward pressure on rental rates becoming evident for the first time since the global financial crisis. Landlords have also benefited from reductions in insurance premiums, with falls of approximately 30% being reported for some buildings.”

Mr Little says Wellington’s economic performance has been relatively flat in recent years compared with the whole country, which has largely been influenced by the performance of Auckland and Christchurch. However, an improved economic backdrop across the region was now clearly reflected by the industrial vacancy survey results.

“Employment numbers within the region have recovered to close to their pre-global financial crisis peak. Annual GDP growth in the region averaged 1.8% over the 2009-2014 period, and this is forecast to accelerate to an average of 3.1%  per annum over the next five years,” the Bayleys researcher says.

Industrial precinct data breakdown
The Miramar and Rongotai zone was the only precinct surveyed that recorded an increase in vacancy in the 2014 survey – with the figure rising from 8.8% in 2013 to 10.52% in 2014. 

Much of the empty space is within buildings on Tirangi Rd and Kingsford Smith St. Some of these buildings are now functionally redundant and unlikely to attract long-term tenants in their current condition. The most likely outcome is that the sites they occupy will be redeveloped.

Overall vacancy within Petone was almost unchanged over the course of the year – easing to 6.9% from 7.1% in 2013. A vast majority of the vacancy, however, is located within the precinct’s fringe locations such as to the west of Hutt Rd and on Waione Rd.

Within the core area of the precinct – roughly bounded by Nevis St/Hutt Rd/Udy St/Nelson St/The Esplanade – the market is particularly tight.

At the western end of town a change to the character of occupiers is likely following the implementation of Plan Change 29. The intention of the proposed change is to allow a greater range of activities in this part of Petone, with the most likely outcome that a bulk retail hub will form.

Within the region’s largest industrial precinct, Seaview, over the past two years, landlords have been successful at backfilling more of their space – albeit at relatively low rental rates. Higher-quality space is now in short supply – particularly for warehouses up to 1000m².

Ngauranga, being one of the smaller industrial precincts, has been volatile – as a small number of buildings falling vacant or being leased can have a significant impact on the overall figure.

Overall vacancy has trended down – now sitting at 5.8%, although the very late inclusion of data for the ex-Mastertrade building and ex-Pronto Print buildings means these latest lettings would reduce the precinct’s vacancy to approximately an estimated 4%.

The Grenada precinct now boasts the lowest vacancy rate among the Wellington region’s major industrial precincts. An active letting market and strong competition from owner/ occupiers has seen the vacancy rate falling from 6.6% in the 2013 survey, to 4.5% in 2014.

In Tawa, there is little vacancy on the main road or in the Tawa Business Park. Tawa Junction, a 10,000m² building, which has been mostly vacant for a number of years, is now 60% leased.

Within Porirua, in the upper parts of Elsdon, there is still plenty of bare land available. Demand for land in this area is soft, with little inquiry. Further down in the Elsdon precinct there is good demand from owner/occupiers for buildings in the 500-1000m² range but there is little stock available.

Northpoint, the northern most precinct of the Porirua area, continues to suffer soft demand from potential tenants, remaining predominately owner/occupier territory.

On the Kapiti Coast, there is a higher degree of vacancy in units of between 300m² and 500m². The lack of stock, particularly at the smaller end of the size range, suggests that development opportunities exist in the area.

The commencement of work on the Kapiti Expressway has begun to have an impact upon commercial occupiers considering where they wish to locate.

Scott Cordes writes for Bayleys Real Estate