Industrial demand out of whack with supply

By Paul Higson, Telfer Young Property Valuers

Despite new industrial land being opened up in various Tauranga city locations in the last five years, the growth of the Tauranga region means that vacant industrial land is now in short supply.
A recent search of the Prime Real Estate website showed 20 listings of vacant sections in Tauriko. But no listings of vacant industrial land in Greerton, Judea, Mount Maunganui, Papamoa or the entire Western Bay of Plenty District.
Our research indicates that there were substantial increases in the quantity of vacant industrial land sold between 2013 and mid 2017. However, since then the volume of land sales (as measured by the area of land sold) has dropped away in the last two years. However, demand is unlikely to have decreased since this time.
One way to gauge demand for land is to look at rental rates for developed industrial property. The industrial rental market in Tauranga is currently showing strong and sustained rental growth. This growth of rental rates has been experienced for the last five years or so and followed a relatively flat period. Uplift in tenant demand over this period has led to generally lowering vacancy rates. Rental growth in the industrial sector has been running at around 5% to 7.5% per annum over the last four years or so. This indicates that there is strong demand for most forms of developed industrial property in the region.
Another search of the Prime Real Estate website showed the following listings of industrial premises for lease:

  • 1 listing in Judea
  • 7 listings in Greerton
  • 14 listings in Mount Maunganui (but with 4 of these not having been built yet)
  • 4 listings in Papamoa
  • Home based services (family day centre)
  • Pacific Island Early Childhood centres
  • Playgroups

It appears then that there is very little for a prospective tenant to choose from.

Another indicator of demand for land comes from the popularity of developed industrial property for purchase. In this regard our research indicates that the average yield for industrial property over the 2017 calendar year was approximately 5.8%. In this regard our research indicates that the average yield for industrial property over the 2017 calendar year was approximately 5.8%. Whilst in 2018 this fell to 5.5%. A similar trend has continued in the first half of 2019.

Before I outline what I think this means for the industrial sector, I must make the caveat that assumptions are predicated on the economy chugging along in a similar fashion to the way it has in recent years. But assuming it does stay in reasonably robust shape, an understandable conclusion is that upward rental pressure on industrial property is likely to get more pronounced in the short term. Another factor is that as there are restrictions on the supply of vacant land, the development in the short term of new industrial premises will be restrained. Undoubtedly a further supply of new industrial warehouses and workshops are being constructed as you read this, but it is questionable as to whether there will be enough construction in the short term to bring supply and demand back to a near equilibrium state.

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