Greater balance in Christchurch industrial sector

268-278 Main South Road, Hornby, industrial complex sold for $16.25m by Colliers International. Photo / Supplied

Christchurch's industrial sector is recalibrating to a more balanced demand and supply profile, as construction activity dips slightly and local businesses expand and absorb existing space.

That's according to Colliers International's latest half-yearly Christchurch industrial research report, released this week.

Chris Dibble, Director of Research and Communications at Colliers, says stronger market fundamentals continue to underpin the city's industrial sector.

"Key to this has been the ongoing recalibration of the sector. We've seen a more balanced demand and supply profile predominantly due to local businesses expanding and absorbing existing
space."

Dibble says that in addition, a slight reduction in construction activity is assisting.

The total amount of new industrial space to be issued a building consent has dropped from a recent cyclical high of around 326,000sq m in the year to September 2016, to 219,000sq m in the year to September 2019.

"Given the more positive market dynamics and low interest rate environment, investor activity remains strong," Dibble says.

"Prime average yields firmed 33 basis points between the third quarters of 2018 and 2019. Secondary average yields firmed a further 21 basis points.

"Steady rents and sharpening yields have influenced average prime capital values to rise by 3.1 per cent in the past year. Secondary capital values are up 3.6 per cent."

Investor confidence remains high, with Colliers International's latest quarterly survey putting Christchurch at a net positive (optimists minus pessimists) score of 21 per cent. This is up from a net positive 16 per cent in Q3 2018.

Sam Staite, Industrial Director at Colliers International's Christchurch office, says industrial vacancy is at a near record low.

"As such we predict the increase in the demand for land and the construction of new builds will continue.

"Our highly capitalised local market will continue to seek quality property and with limited supply we believe further tightening of investment cap rates is highly likely.

"Secondary investment cap rates will stay steady, however tenant demand for lesser quality properties will remain soft with the potential for downward pressure on C- and D-grade rental rates."