As a high percentage of New Zealand’s GDP is aligned to some form of industrial property use, the demand for quality industrial land remains across the country.

In Auckland, the supply is totally inadequate, in Wellington businesses are struggling to find industrial zoned land, in Christchurch the ongoing challenge is sourcing enough prime land and in Nelson businesses are clamouring for bare industrial land.

Along with a supply shortage land values have surged as the high demand from investors is not satisfied. Auckland prices have skyrocketed to $550/m2 at Drury South, the only large subdivision of industrial zoned land south of Auckland.

Savills industrial sales and leasing head Paddy Callesen says four years ago industrial land was selling for $350/m2. It has risen 20% year-on-year.

Fierce Competition

In Nelson about 60 buyers recently vied for just 10 prime industrial sites in a new subdivision. In less than a month the sites had been sold for a total of $25 million – double the price they would have fetched a year ago. Industrial zoned land is now selling for $300-$400/m2, with the most desirable sites fetching $500/m2.

These prices are nowhere near Auckland’s level, but the pent-up demand for industrial land in Nelson has not been seen before. Investors and owneroccupiers intend constructing buildings for agriculture, aquaculture, logistics and engineering among other uses.

Wellington is stuck between a rock and a hard place with a 1.5% vacancy rate for industrial land – the lowest since records began. Colliers International says there are only about six hectares of industrial-zoned greenfield land left across Hutt Valley, Wellington, Kapiti and Porirua.

After that investors have to look further afield as far at Levin or south of Masterton. Moving further south increases freight costs and adds to road congestion.

The lack of industrial land could hold back economic development in the Wellington region as there are companies with growing levels of export and domestic demand that can’t be met because they don’t have space to expand, says the Hutt Valley Chamber of Commerce.

One bright spot for Christchurch investors is Auckland businesses looking south to buy industrial zoned land at far cheaper prices. The city is the second largest industrial centre in New Zealand and the main distribution hub for the entire South Island but the ongoing challenge is finding enough prime land to satisfy high demand from investors.

Fraught Situation

Callesen says industrial zoned land, for development, in Auckland is hard to come by. The majority is held in institutional or high-net-worth ownership.

More than 80% of industrial land is in the traditional precincts of Wiri, the airport, Onehunga, Penrose, Mt Wellington, Ellerslie, East Tamaki/ Highbrook industrial areas as well as the North Shore and West Auckland. There is virtually no land for sale anywhere in these core areas, says Callesen. “The odd half hectare block comes up occasionally but the business drive is to Drury South.

“It is becoming increasingly fraught as what is available is already precommitted.” Even in Drury South all land with titles has been snapped up. There have been inquiries for at least 20 hectares and a waiting list has been created, which has been unheard of previously. Investors and developers are waiting for the next two tranches to be released to the market.

Another 50-60 hectares of other land has some industrial land included but it is yet to come to market.

There are estimates of about 500,000m2 of new industrial development, generally for new warehouse space, on the drawing board in Auckland to be ready over the next two years. Even this is not enough, says Callesen as it will all be pre-committed.

The main stumbling block to making sure there was enough industrial land was during the Unitary Plan hearings when Auckland Council did not put aside enough zoned land for industrial use, says Callesen. “Minimal thought was given to where industrial businesses would go. It all went to housing.” The opening of nearly 16,000 online Shopify stores in New Zealand has increased demand for warehousing. He says industrial and commercial planning has essentially been left up to investors or developers submitting plan changes. Because the council has not planned where business zones should go it then makes ad hoc decisions based on plan changes.

The council’s Auckland Plan 2050 says the city needs about 1,400 hectares of business land in greenfield areas. The plan’s development strategy identifies indicative locations for business land and centres, mainly in the eastern and western parts of the urban area.

Callesen believes the council should go further and its property arm, Panuku, should be buying land suitable for industrial development, putting in services, submitting plan changes, supplying infrastructure and selling it for a margin. “Infrastructure alone can create a huge profit of $1,000/ m2. The council could double or triple its monetary outlay, while making sure industrial land was in appropriate areas with the right zoning. It could take the heat out of the market.”

Boost From E-Shopping

Logistics businesses have been boosting the bottomless need for industrial land. The accelerated adoption of online shopping which Covid lockdowns drove has seen a sharp increase in demand for space from the logistics sector. One of the factors for physical warehousing has been the opening of nearly 16,000 online Shopify stores in New Zealand. The Government’s multi-billion-dollar infrastructure programme will inject additional demand for industrial workspace.

According to Statistics New Zealand, building consent approval was issued for 1.14 million square metres of new industrial development across the country during the year to April, up 16.6% on the total recorded a year prior.

If investors can buy industrial land they then face the shortage of building supplies and labour, as well as rapidly increasing costs.

The country has been dropped off the global supply chain by many construction material suppliers in the wake of Covid, threatening to stall the building sector here.

The New Zealand Building Industry Federation says post-pandemic business model reviews by global shipping and building supply companies has meant New Zealand is no longer included on their supply routes, with supplies getting only as far as Australia.

That puts additional costs on New Zealand building supply companies to try to get what they need into the country. Some companies are spending as much as $65,000 per week on shipping costs.

The broken supply chain is just one of several challenges facing the construction sector. Other hurdles include a skilled labour shortage and reduced margins.