Opportunities remain in the NZ industrial market
FOR IMMEDIATE RELEASE 22 August 2008
Yields soften, but opportunities remain in the New Zealand industrial market
Auckland, NZ (22 August 2008)
The softening of yields for industrial investment property remains the most topical issue confronting the NZ industrial sector according to CBRE Associate Director David Arlidge.
Speaking this week at CBRE’s annual Market Outlook breakfast presentation in Auckland, Mr Arlidge said industrial yields had shifted out by between 100 - 200 basis points - a softening which was “changing the whole game and bringing with it a raft of new opportunity.”
However, Mr Arlidge said distinctions needed to be made between the prime and secondary industrial markets.
“To say that all industrial property has been drastically devalued as a result of the recent events in the debt markets is generalist and misleading,” Mr Arlidge said.
“The yields for secondary industrial property had become out of control - primarily driven by the owner occupier market and significant funds being available, coupled with a lack of prime investment opportunities. Consequently, yields for secondary stock moved within 20-40 basis points of prime investment stock. “
As a result, Arlidge said it was logical that the secondary market was adjusting - and far more so than prime properties.
This was creating issues for the owners of non-core assets wanting to reduce debt or re-capitalise.
“Our advice is to focus on repositioning secondary assets for when the market bounces back,” Mr Arlidge said.
“In this market the best way to maximise realisation outcome is through the disposal of prime passive properties or value-add opportunities in markets with strong fundamentals and growth prospects. For secondary assets, if you are not a distressed seller, refurbish, renegotiate long term leases and look to hold.”
On the opportunity side, Mr Arlidge recommended buyers look at secondary properties of between 1000 square metres and 3,000 square metres which could be repositioned to capitalise on the severe shortage of quality buildings in traditional, industrial-zoned locations.
As at June 30, just 3.1% of Auckland’s 9.3 million square metres of industrial space was vacant. In the traditional industrial suburbs of Wellington and Penrose, which offered 3.33 million square metres of industrial space – the vacancy was even lower at just under 2%.
The picture was similar in East Tamaki, with a total vacancy of 3.5% and very few options for medium sized tenants wanting 1,000-4,000 square metres of space.
In this environment, Mr Arlidge said developers could look to buy secondary assets which offered high stud heights of more than six metres and good yard areas and which could be repositioned to provide quality open plan offices, new airconditioning, wide roller doors and canopies.
“Tenants want quality and will pay for the right product,” Mr Arlidge said.
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