Small is good

As the industrial leasing market around New Zealand continues to show minimal vacancy, it’s tough for business owners looking for well-located space – and smaller business owners are feeling the squeeze.

Construction-related tradespeople, small e-commerce store operators and other SMEs, along with those looking for vehicle storage or compact workshop space, are finding it increasingly difficult to secure a modestly-sized accessible industrial unit to rent.

Largely that’s because this segment of the property market has become sought-after by owner-occupiers – especially post-pandemic – as many people have either started a new business, or evolved an existing one, to fit into the new business landscape.

Developers have recognised the demand for high-quality small warehouses or units in the growth nodes around our main cities, but quick uptake from owner-occupiers means that very few of the new-build stock makes it to the leasing market.

These smart industrial business parks feature smaller units, typically from 30-200sqm, with modern amenities, landscaping, on-site security, and dedicated car parking and tend to be conveniently-positioned close to residential areas and transport links.

Fraser Press, director Bayleys Wellington Commercial says while there has been an uptick in development of smaller industrial unit complexes in the Wellington region in recent years, the reality is very few units come up for lease.

“The efficiencies and price point of these units when they are sold down off the plans has made them particularly popular with owner-occupiers looking for some security over their workspace and to avoid being at the whim of a landlord,” he explains.

“With vacancy of sub-1% across the main industrial precincts in the Wellington region, any new developments that have come on-stream have sold down rapidly, with very few being bought by investors.”

Press says around 70-80% of the new stock that Bayleys has sold down around the region has been bought by owner-occupiers making leasing opportunities very tight.

“If any units actually hit the leasing market, they’ll be snapped up by astute small business owners who recognise that although significantly more expensive per sqm than other existing stock, the high-specs and pivotal location will provide operational efficiencies in the long-run.”

Press reiterates that with rising construction costs and ongoing supply chain disruption, rental rates for any planned high-spec industrial units will inevitably be at the very upper end of the market.

“If you start comparing rates between older industrial stock and new ones with all the bells and whistles, then it won’t look pretty for tenants,” he says.

“The per sqm rates for newly-built units within dedicated and purpose-built industrial business parks will be more in-line with the high-end storage/lock-up market.

“Business owners will need to factor in higher rents if they want to be in these new developments.”

It’s also a tight leasing market for micro-units in the Auckland region, according to James Valintine, director Bayleys South Auckland.

“From a returns point of view, new industrial business park offerings may not always work for investors – despite strong demand from tenants,” he explains.

“In Auckland we’re finding that these new units tend to be bought by owner-occupiers rather than landlords which tightens the pool of stock available for lease.”

Valintine said although larger industrial premises are also in high demand, a forward-thinking landlord could ‘cut up’ an existing older industrial building into multiple tenancies creating a number of cost-effective smaller units to meet market demand for this style of offering.

“That’s been a successful concept in the past and if a proactive owner of a secondary grade property could make the numbers work, then there would be tenants out there ready and willing to commit to space.”

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