Artist's impression of Mt Roskill NZ Post site being developed by Goodman

In the latest edition of Bayleys’ Total Property, Scott Campbell, Bayleys national director of industrial sales and leasing, said the “big shed” industrial sector has taken everything the global pandemic has thrown at it, and emerged a winner.

“It’s a sector that barrels onwards, with industry data confirming that on 15-year long-run income return averages and capital growth indices, industrial property heads the league table.

“Investment research firm MSCI has reported that total industrial property returns rose 21.8 percent over the year to March – the highest total recorded since the inception of its industrial index 27 years ago.

“That data confirms that record-low interest rates have escalated the competition for industrial property assets leading to yield compression which in turn has lifted values and total returns.”

Campbell said leaving New Zealand’s export-driven primary sector to one side, online activity is driving the majority of action in the industrial market today.

“Bullish eCommerce consumer patterns and the demand for last-mile fulfilment space have been accelerated by the COVID-factor – as has demand for large-scale data centres thanks to the widespread adoption of digital tools requiring cloud-based data services,” he said.

Staying ahead of the demand for well-located, quality industrial property is becoming increasingly fraught and Campbell said the development pipeline in key metropolitan centres is largely pre-committed.

“According to Stats NZ, building consent approval was issued for 1.14 million square metres of new industrial development across the country during the year to April 2021, up 16.6 percent on the total recorded a year prior.

“Given the sheer demand for industrial property and the ever-growing eCommerce market, developers, occupiers and investors are hanging out to see even more industrial land released – or other land rezoned – to meet this surge.”

Bayleys Research estimates there is around 500,000 square metres of new industrial development on the drawing board in the Auckland market to be cycled out over the next two years – generally for new warehouse space in developments larger than 10,000 square metres.

“Much of the new space that will come on stream between now and 2024, is pre-committed, and the huge uptick in eCommerce is fuelling the urban logistics component of the market,” said Campbell.

“Global eCommerce platform Shopify reports a record number of new eCommerce stores in New Zealand opened via them in 2020, with strong growth in the last five years further accelerated by the pandemic and this is just one of the contributors to the unprecedented demand for physical warehousing.”

NZX-listed investment vehicle Goodman Property Trust has been a proactive contributor to the supply-constrained industrial market and Goodman’s New Zealand chief executive officer John Dakin said the decision to concentrate its portfolio in the industrial sector was deliberate and well-timed.

“We’ve repositioned our $3.8 billion portfolio over the last five to 10 years, focusing our investment strategy on the urban logistics sector in Auckland,” he said.

“Goodman’s portfolio includes 1.1 million square metres of high-quality urban logistics space, located across Auckland, with an average occupancy rate of over 99 percent.

“The outperformance of the industrial sector has reinforced the benefits of this strategy, which has delivered great results for our investors and customers, with the future growth profile looking equally strong.”

Dakin said appropriately-zoned greenfield development opportunities are becoming rare in the Auckland region, hence Goodman’s development programme is increasingly focused on well-located infill sites, close to transport infrastructure and large consumer populations.

The Goodman redevelopment of the former Foodstuffs distribution centre in Mt Roskill, where it is intensifying the site with a highly sustainable development masterplan anchored by NZ Post, is a prime example of this strategy.

The forward development pipeline within the Goodman portfolio is expected to create a further 250,000 square metres of urban logistics space, with an expected completion value of around $1 billion.

NZ Post’s latest eCommerce research The Full Download shows New Zealanders spent more than $5.8 billion online last year – an increase of 25 percent on the year prior.

It is investing $180 million in parcel processing infrastructure over the next 10 years, working with established development companies to get the facilities built then leasing them.

This includes new sites currently under construction in South Auckland, Mount Roskill, Wellington, and an extension to its existing site at Christchurch International Airport‘s Dakota Park.

Greg Morris, group property and procurement manager for NZ Post, said these new sites and the technology that drives them, will help double NZ Post’s parcel processing capacity to 190 million items annually by 2033, deliver more visibility and efficiency, and allow it to be the best delivery partner for New Zealand.

“With the well-documented shortage of industrial land around the country, finding sites with the scale required in NZ Post’s desired locations has been challenging,” he said.

“With increasing demand for shorter delivery times, we ideally need to be located close to population centres of gravity which often means industrial space is limited.

“This combined with strong overall demand for industrial space means early market engagement and persistence have been required to achieve our goals.”

Goodman's Highbrook Business Park in East Tamaki is valued at $1.9 billion