When your business needs room to grow, it’s likely time to upscale and invest in a commercial or industrial property. Such a building will likely be one of your business' biggest assets, so it’s vital to invest wisely.
To make this process a little bit easier, we thought we’d provide you with a snapshot of the commercial and industrial property market in New Zealand, looking specifically at data from the 2022 financial year. In this article, we’re going to evaluate how the commercial/industrial property market performed during that period, as well as what the predictions are for the next financial year. This way, you’re better prepared to enter the market from a more strategic standpoint if that’s what your business requires.
What defines the commercial / industrial property market?
Before we get too far into the numbers, we’ll give you a brief overview of what constitutes the commercial and/or industrial property market in New Zealand.
Commercial and industrial real estate essentially underpins the health of New Zealand’s economy. While it’s a constantly changing and evolving landscape, commercial and industrial real estate activity is a prime indicator of expected expansionary activities of businesses across the country. Seeing businesses either purchase their first commercial or industrial property or upscale into a bigger one is a key sign of the growth of a company’s activities in the near future. All-in-all, this is excellent for New Zealand’s economy.
Owning and/or leasing commercial and industrial property has grown to become a sophisticated market for those viewing it as a long-term asset that can provide above-normal returns. There are some key subsectors in the marketing including the likes of warehouse buildings, offices, manufacturing, agricultural, workshop buildings, and so much more.
The commercial and industrial property market is a large component of New Zealand’s economy as it typically demonstrates business growth in various key sectors across the country.
How did the commercial / industrial property market perform in the 2022 financial year?
So, now that we’re clear on what the commercial and industrial property market consists of in New Zealand, let’s dig into the performance numbers.
Firstly, the New Zealand commercial property operators' market size in 2022 is sitting at 24.7 billion. For a small country, that figure is certainly significant! The 2022 financial year has seen a renewed interest in New Zealand’s commercial and industrial property from both local and offshore investors. It’s particularly appealing for those overseas investors seeking a haven amongst the Covid-19 chaos. As we are stepping out of the past two years of Covid-19-related uncertainty, there is a newfound interest in our economy. This is observable in the 0.7% annualised market growth of the commercial property operators between 2017 and 2022, as well as the 5.5% market size growth in just 2022 alone.
Overall demand within the commercial and industrial property market has evidently strengthened over the past year and vacancy rates are sitting at or near historically low levels. In Auckland, vacancy sits at just 1.9% with leasing options being a limited occurrence for long periods. Likewise, Wellington is seeing vacancy rates of just 2%. The past couple of years of Covid-19 lockdowns has majorly impacted the commercial and industrial property markets and for the better. Across the board, logistics businesses have observed large increases in demand as a result of the pandemic-induced spike in online shopping. According to the New Zealand post, online shopping has now reached $7.7 billion. In turn, the need for more or larger commercial and industrial buildings to accommodate this has become more prominent.
The supply chain disruption that has come to light over the past year has also boosted warehouse and yard space demand as businesses require more storage space. The notable increase for commodities in the agricultural sector has also driven the growth in the industrial sector, largely surrounding warehousing and logistics needs too.
Predictions for the performance of the commercial / industrial property market for the 2023 financial year
The commercial and industrial property market’s performance throughout the 2022 financial year has pointed to one key emerging trend for 2023. As a direct result of the increased market demand, it has been said that we are likely to see increasingly higher rental prices for commercial and industrial properties.
As Colliers explains:
“Low-interest rates from accommodative monetary policy drove up investment and development activity to record levels. Suitably zoned greenfield development land was snapped up, and construction cost rises from supply chain issues and labour shortages forced land values up. With ongoing inflationary impacts, a result of lingering Covid-19 impacts, much higher rentals need to be achieved for developments to be financially feasible.”
The high proportion of private ownership in this sector will likely work to lessen any excessive increase rates, however, it will not be able to avoid it completely. The predicted higher rent prices for both commercial and industrial properties will also neutralise some of the rises in servicing costs for building owners as interest rates continue on their upward trajectory.
The predicted increase in rental rates is great news for those who own a commercial or industrial building. However, if you’re currently leasing a premises, it may be a good time to consider investing in building your own purpose-built space to last your company for generations to come, while ensuring you reach a peak resale value.
The past year has been one of great prosperity for the commercial and industrial property market, with no signs of this slowing in the near future. Consequently, there’s no time like the present to consider building a commercial or industrial building to accommodate your business’ unique requirements and growth needs. If this sounds like you, please feel free to get in touch with our team for a no-obligation chat about how we can help get your business into a purpose-built building so it can thrive. Otherwise, we have plenty of early-stage planning information readily available for you to evaluate your options. Simply download our popular guide to selecting land for your next commercial building.
