Big Wellington industrial for lease a rarity

This big industrial property is for lease at 147 Gracefield Rd, Lower Hutt.

A large industrial property for lease in Lower Hutt is a rarity in a Wellington industrial market where industrial property occupiers wanting to move or upsize their premises don't have many options left in popular business precincts.

Colliers International broker Tim Julian says the supply of industrial property is falling and the demand is high.

"There isn't enough land left to construct many new buildings in Petone, Lower Hutt, Ngauranga and Grenada, which are the suburbs that businesses want to be located in," he says.

Julian says property for lease at 147 Gracefield Rd, Lower Hutt, comprises around 7500sq m of high stud warehousing with office and canopy areas and yard space.

"It is one of the largest and best quality industrial buildings available in the Wellington market."

The facility's large, modern warehouse has a stud height rising from 8.8m to 11.5m, with just one row of columns and 1406sq m of canopy across the north side of the warehouse which provides covered loading and unloading space. There is space for truck access right around the site and separate car parking at the front while an extensive rear yard provides truck parking space and a hard-stand storage area of 6686sq m.

The building's interior has 435sq m of self-contained offices over two levels at the front and incorporates meeting rooms, open plan office space and amenities.

Julian says he and his colleagues Kieran Lennon and Ben Taylor have fielded a large number of inquiries from businesses which are keen to upsize or upgrade their warehousing or manufacturing space over the past year.

"The growing economy is providing a positive operating environment and many businesses are doing well. We've noticed a definite sea change in sentiment since the end of last winter and industrial occupiers are in a more buoyant and confident mood," Julian says.

"Many of these businesses want to move to bigger or better industrial premises but are finding it difficult to find suitable space to lease. According to Colliers International's latest survey, demand for industrial space in Wellington has pushed the vacancy rate to a record low 3.6 per cent.

Tim Julian, Colliers International.

Lennon says there is now less than 100,000sq m of industrial space available - well below the 9 per cent vacancy recorded in late 2012.

"Industrial property has been taken up quickly over the past few years to the extent that there is now only the equivalent of 10 rugby fields of space available to lease. This is due to stronger tenant demand and practically no new supply."

He says the supply of industrial space had become more restricted owing to a combination of factors. These include some industrial properties being converted to retail use; new infrastructure projects getting underway and a shortage of well-located land preventing developers from being able to construct buildings where tenants want them.

"A trend for converting industrial properties to bulk retail use had emerged in the face of a lack of other options for retailers," says Taylor.

"The new Kmart store on Hutt Rd has taken the Feltex factory site out of the market. Briscoes and Rebel Sport's conversion of the old Colgate Palmolive site into retail space is taking out that site. And Bunnings taking over NZ Post's site in Petone has removed yet another building from the inventory."

Industrial space in Wellington has pushed the vacancy rate to a record low 3.6 per cent.

Julian says converting industrial property to retail often realises a higher-value outcome for landlords. "Retailers are able to outbid industrial users for property and this opportunity has arisen following rezoning of land in Petone West to allow retail use."

He says flood protection improvement plans for the Hutt River Stopbank, with some 25 businesses affected; and the $270 million Petone to Grenada link road will further reduce the availability of industrial properties as land is cleared to make way for the project, with some 30 businesses affected.

"We also have the Transmission Gully and Kapiti Expressway projects which are driving renewed demand for industrial property in areas that will benefit from the new roads. This has resulted in greater demand at a time when there is scarce supply."

While there are developers who are prepared and able to deliver new buildings, tenants remain reluctant to sign sufficiently long leases and accept rental rates that are adequate to justify the cost of a new build, Lennon says.

"Tenants have preferred to take existing buildings at lower rents, but that route has now been almost exhausted. However, we do have some property owners who are willing to refurbish their buildings and lift roofs to increase stud heights, so this should put some better-quality building stock into the market."

Availability of land for new construction projects is also an issue, says Taylor. "There is land available in locations such as Porirua and Upper Hutt which have traditionally been less desirable. Porirua is gaining acceptance and will be helped by roading improvements, but Upper Hutt is still seen as too isolated by many tenants.

"This could change, however, with the upgrade of State Highway 58 providing a better link to the new Transmission Gully Rd at Pauatahanui, which could potentially make Upper Hutt quicker to access than Seaview for transport coming from Auckland."

Julian says that overall, space had been taken up steadily and there is little new supply entering the market. "We now have a lot of frustrated tenants and nothing much to show them unless they consider outlying areas."

As a consequence of confidence in the business environment which continues to outweigh supply, rents are expected to rise, he says. "Wellington's industrial rents are fairly static and affordable compared with Auckland and Christchurch. That is now changing with increases of up to $10 per square metre across most precincts so far this year."

Lennon says the changes in dynamics in the industrial market provided compelling reasons for investors to buy property in the sector.

"Investment demand for quality, well-leased and well-located properties is strong and investors are back in greater numbers - although properties are scarce."

Taylor says low interest rates are fuelling additional demand from investors, while rising rents and growing business confidence could potentially lead to increased development, "Tenants and investors are both hoping for a tipping point that could bring further opportunities for occupiers and buyers to a starved market in the future."