South Island commercial, industrial market shows resilience and growth

In the last of a three-part series, Bayleys’ managers from key South Island property markets review 2014 and look to the next 12 months. Jody Robb reports.

Nelson
Office rental values have increased in the Nelson region, according to Bayleys Nelson director Tony Vining. 

“Eighteen months ago we had high office vacancy but through proactive leasing deals, have had a 50-60% uptake of this space mainly due to relocations in the wake of earthquake strengthening issues, repositioning or upsizing,” Mr Vining says.

“About 25% of this surge has been from out-of-town businesses.” 

Retail rental values have been stable, with good uptake of vacant retail space.

“A high proportion of tenants are national companies, which have not previously had a presence in Nelson,” says Mr Vining.

Industrial rental rates have increased thanks to a relatively buoyant industrial sector, while investment yields have firmed on good stock.

“The increased levels of enquiry coming from the main centres and off-shore is now starting to translate into tangible interest in Nelson commercial and industrial property, both from an investment and leasing perspective,” says Mr Vining.

“Industry in the region is fuelling a lot of the commercial and industrial growth, while Christchurch-based property investors faced with limited choice post-earthquake and not wishing to wait out development cycles in the Canterbury market, are looking to Nelson for cost-effective opportunities.”

Canterbury
Bayleys Canterbury general manager Peter Whalan says office rental values have increased in the Christchurch CBD as professional tenants move back into the city centre.

“The number of new build office developments completed and in progress in the now scaled-down CBD have taken the city’s actual and potential office inventory to higher levels than pre-earthquakes. Whether this will ultimately lead to over-supply remains to be seen,” Mr Whalan says.

It is fairly hard to track retail rental trends given the disparate market post-earthquakes with constrained supply and uneven demand but the overall trend is that they have risen, he says.

“As the retail scene evolves, we expect to see some more consistent rental trends emerge.”

Meanwhile, industrial rentals have levelled out after tracking upward in response to increased demand for both existing and design-build premises and improving infrastructure across the region. 

“Universally, leasing enquiry has been strong and it has been a case of whether we can match prospective tenants with a property that suits their immediate and future requirements,” said Mr Whalan.

Investment yields have been firm across the sectors with Mr Whalan saying that sales of industrial land are likely to continue to be robust given high demand from owner-occupiers. 

“The uptake into Rolleston has been massive, with reasonably priced development land selling well, the Port Link business park development to the east of the city is finding favour, and Belfast in the northeast is emerging as an affordable and sought-after industrial location,” said Mr Whalan.

“We expect to see more overseas investment in the hotel and wider hospitality sector, while the major key projects across the region are tending to be driven by people who were active and visible in the market before the earthquake events.”

Dunedin
Bayleys Dunedin commercial and industrial director Robin Hyndman says office rental values in the city have been stable, and there has been reasonable demand for office property where landlords have been prepared to assist with fitouts and be proactive on earthquake strengthening.

On the other hand, Mr Hyndman says retail rental values have decreased.

“There are now a considerable number of retail vacancies in the main retail strip, George St – a new phenomenon for Dunedin.  We are fielding minimal national inquiry for retail space and seeing very little new business coming to town.”

Industrial rental values remain stable, with Mr Hyndman saying the industrial market is in reasonable shape.

“There are several new developments taking place, mainly housing service and distribution activities. 

Leasing enquiry has recently increased on the back of a sluggish previous 12 -18 months and investment property yields have been firm. 

“We expect the market will see some growth in the coming 12 months, and businesses will react to this confidence accordingly,” Mr Hyndman says. 

“There is currently little appetite for earthquake-prone and leasehold property. However, something has to give and we expect to see more stock coming on to the market as owners’ circumstances change.”

Mr. Hyndman says there are some tangible positives to be noted in the Dunedin market.

“The area to the south of the CBD known as the Vogel St historic precinct is undergoing a metamorphosis from early settlement warehouses and head offices to new uses including residential and office functions.  

Further, Dunedin City Council is investing in upgrading public spaces with major makeovers of the streetscape, while Otago University has more than $600 million worth of new buildings in the works, which highlights its vital role in the region.”  

See part 1 here - Northland and Auckland 2014 commercial property market in review

See part 2 here - Central and lower North Island’s commercial property reviewed

See part 3 here - South Island commercial, industrial market shows resilience and growth

Jody Robb writes for Bayleys Real Estate