Q1 2021 Industrial Property Market Overview…
Barfoot & Thompson Commercial has just released its Q1 2021 Industrial Property Market Overview. They report a strong rebound in national business and consumer confidence that, combined with increased government expenditure on infrastructure and housing, will support economic growth in the short to medium term. Loose monetary policy is also underpinning our economic performance.
“The rapid elimination of the SARS-CoV-2 virus allowed the domestic economy to operate with minimal restrictions, although the suppression of minor outbreaks in Auckland continues to disrupt business activity in our largest city.
“The rebound in economic activity has been even more comprehensive than expected. The growth in the September quarter was stronger than market expectations, and along with the earlier revisions, puts the level of GDP slightly above its pre-COVID-19 level.
“Interest rates are at levels not seen for decades and money supply is now growing at rates in excess of 10% per annum. The Reserve Bank has also signalled it will continue to ease monetary policy if required.
“The outlook for the economy is uncertain and at this stage of the cycle, only time will tell how significant the medium to long term impact of the COVID-19 pandemic will be. The economy is expected to recover and grow at a modest pace in 2021.”
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Total industrial property market vacancy rates
Barfoot & Thompson Commercial’s report says demand for space remains strong. Although there has been a small increase in vacancy rates in secondary quality buildings, they remain at near historical lows.
Demand for good quality space remains strong in the prime precincts with limited vacant buildings available for lease.
Market rents for industrial buildings
Face rents have stabilised over the last twelve months, and incentives that landlords have had to offer have also reduced, both of which point to a stronger market.
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Industrial property market investment yields
Investor demand and the current low interest rates are maintaining downward pressure on yields…
| Market | Mar ’16 |
Mar ’17 |
Mar ’18 |
Mar ’19 |
Mar ’20 |
Mar ’21 |
| Prime | 5.75% to 6.50% |
4.75% to 6.25% |
4.75% to 6.00% |
4.75% to 5.50% |
4.50% to 5.25% |
4.25% to 4.75% |
| Secondary | 6.25% to 7.00% |
5.25% to 6.50% |
5.25% to 6.50% |
5.25% to 6.25% |
5.00% to 6.00% |
4.75% to 5.50% |
NOTE: This sobering table highlights one of the benefits of Provincia’s value-add investment strategy.
Vacancy rates are lowest in South Auckland, which dominates the demand for industrial space with strong uptake from logistics and light manufacturing businesses.
A lack of development sites has further tilted the demand/supply balance in favour of landlords and is adding further upwards pressure on rents.
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CBRE Sublease Barometer – Australia CBD
Mirroring the situation in New Zealand, CBRE reports that Australian sublease availability remains high, particularly in Melbourne and Sydney.
Future workplace occupancy remains a challenge with the potential movement towards a hybrid/remote office model. An increased adoption of this model will result in occupiers’ real estate portfolios being defined by flexibility.
“Opportunistic tenants are taking advantage of attractive sublease space in quality buildings with near new fitouts. With a number of large sublease transactions pending, we expect the sublease market to peak in 2021 (total sqm) and gradually reduce back to pre-pandemic levels by late 2022.”
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CBRE APAC Leasing Market Sentiment Survey
CBRE’s Leasing Market Sentiment Survey is based on responses from leasing market professionals across Asia Pacific.
They report more frequent tenant enquiries and site inspections, steady demand for flexible space, stronger downwards pressure on rents, particularly in Japan, and slightly weaker leasing sentiment in April compared to the previous two months. Overall sentiment, however, remains positive.
Leasing sentiment is strongest in the industrial sector.
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DISCLAIMER
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Provincia Property Fund Ltd nor Provincia Property Management Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.
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