Navigating the industrial leasing market post COVID-19

Prior to the global pandemic upheavals, the industrial sector of New Zealand’s workforce was trucking along at a great rate of knots and tenant demands were outweighing the availability of industrial premises.

Vacancy rates were low, competition for space was high – particularly in the logistics and supply chain category – and vigorous online shopping activity meant warehouse properties were as scarce as hens’ teeth.

Then along came COVID-19 and, thankfully for the sector, overseas examples show the industrial market will largely be quite well-insulated from major disturbance.

Yes, there will be casualties and for some parts of the market, the comeback will be slow. Think anything related to tourism for example, and those businesses reliant on products from overseas where supply chains have been severely disrupted.

Bayleys National Director of Industrial and Logistics, Scott Campbell, says even through lockdown, the leasing teams around the country have had good enquiry on industrial property for lease and he doesn’t see this easing off.

“It’s a robust and resilient sector by and large, and some of the trends we were seeing pre-COVID were fast-tracked as a result of increased demand in certain areas,” he says.

“Online shopping capabilities through ‘dark stores’ for the likes of supermarket chains were well-advanced, but accelerated when demands for home-delivered groceries escalated.

“We’ve also seen the importance of last mile delivery in meeting this unprecedented demand and once the country moves down alert levels and supply chains gear up again, this is going to be even more evident.”

Campbell says New Zealanders have become more click heavy online thanks to a restriction on their movements in the past month and this activity may bring forward online/e-commerce initiatives and automation developments that many businesses had been working away on quietly.

“It’s taken a global pandemic to kick-start a more tech-savvy sector and that’s going to bring about more change in the industrial property market as businesses look to activate new initiatives in an effective and efficient way.

“What this global crisis has shown is that New Zealand’s supply chain has, overall, shown resilience and given that we produce a lot of products that the world wants and some components of the export market have already or are expected to re-emerge quickly, the broader industrial sector seems at this early stage to be holding up,” says Campbell.

Another trend around the country is the owner-occupier market actively looking to free up business capital through sale and leaseback transactions.

While there had been activity in this area prior to the COVID-19 event, Campbell says Bayleys’ sales and leasing team has fielded numerous requests for proposals from business owners seeking to improve their balance sheets and fuel business growth by exiting property ownership.

“While owning their own business premises can give security of tenure, relinquishing the ties of property ownership through sale and leaseback can allow a business to continue working without disruption from a fit-for-purpose property – all while having capital to plough back into their operation to improve productivity or to pivot their focus,” says Campbell.

“For those businesses that perhaps won’t be as quick out of the blocks during these uncertain economic times, selling up and negotiating a lease to remain onsite could provide some certainty and, in taking away the onerous tasks of property ownership, could even free up the mind for innovation.”

Bayleys have undertaken a comprehensive White Paper on the best way to navigate sale and lease back opportunities and the best way to achieve maximum outcomes.

Prepared by Stephen Rendall, Bayleys national director real estate advisory, in conjunction with Bayleys’ commercial and industrial business sector leaders, the paper outlines the pros and cons of the sale and leaseback proposition.

For your copy, email us: workplace@bayleys.co.nz

Subscribe to receive the latest commercial news and insights from Bayleys Workplace