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Industrial Property: Returns are at an all-time high

Commercial

Property Brokers 19 Aug 2021

Marty Love_Ideal sizeThe market is currently seeing strong demand for quality commercial properties, with industrial being the stand out.

Current industrial rental rates across the provinces have continued to increase, particularly for earthquake compliant buildings.

Figures from the latest MSCI/ Property Council index have shown commercial and industrial investments have reached a new multi-year high. Record low interest rates have assisted in compressing yields and increasing values, resulting in lifting total returns.

Industrial property is becoming hugely popular amongst all types of investors in New Zealand. Even hardy residential investors who have traditionally invested solely in the residential market are now turning their attention to industrial property due to the ease of management, favourable contractual arrangements and high yields being achieved.

 

Competition from wealthy individuals, syndicators, and listed property companies looking for high yielding assets with more defensive characteristics such as industrial or bulk retail are also pushing prices up and yields south.

In contrast to office and retail space, the industrial sector has also shown significant resilience against current market conditions. Growth in logistics, rural, and agribusiness sectors are key drivers behind high demand for industrial space, leading to low vacancy rates accordingly. Supply pipelines of new developments continue to remain modest, further contributing to the shortage and overall confidence in this sector.

Additionally, public works and infrastructure activity for shovel-ready projects are now underway in many parts of the country, injecting jobs and productivity back into an otherwise deflated national economy.

This was evidenced by a recent sale in the Manawatu of a fully tenanted 4,802m² industrial property. Property Brokers Commercial Sales Consultant Chris Green stated, “This property sold within a couple of weeks of hitting the market, in a multi-offer situation and achieved an outstanding outcome for the vendor, – being one of the tightest yields seen in the Manawatu.”

Building consent approval was issued for 1.14 million square metres of new industrial development across the country last year, up 16.6% on the previous year, with the Manawatu/Whanganui region leading the way where the total floor area consented rose by 329% while Bay of Plenty consents rose by 102%.

So what is the attraction with industrial property investment? Industrial property tends to have higher returns than other types of investment, with yields in the provinces typically ranging between 5% - 7%. Industrial property also has other attractive attributes, including often having long term lease terms, being of simple construction and being multi-purpose so if one tenant leaves a replacement can be found quickly and without to much refurbishment having to take place.

Purchasers of industrial property usually look for a number of key attributes.

These may include:
• A long term, secure tenant
• Proximity to major transport links and arterial roads.
• Suitable ratio of warehouse, yard space and office space
• Easy accessibility for trucks and large vehicles
• Significant roof and gantry height
• Good NBS rating
• Location

In summary, while the short to medium-term outlook for the office and retail sectors remains uncertain at best, the industrial market will continue to be an attractive investment for buyers and sellers alike in the medium to long term.


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