Moderate pick up in business demand for premises

Dakin says while there has been moderate pick up in occupier demand, tenants are still very cost focused.

“Given that our economy hasn’t really expanded over the last few years and it’s very hard for many businesses to grow in this sort of environment, that’s not surprising.”

Dakin says Goodman has close to $100 million of development work underway at present. 

“This compares with the wilderness years of 2008 and 2009 when we were doing around $30 million worth of development business year – so there’s been significant increase in activity. However, most of the increase in project starts is coming from businesses that are redesigning their supply chains and are looking at cost efficiencies through consolidating their operations. The trend to online retail sales and ecommerce is also generating warehouse development activity.”

James Hill, an industrial leasing specialist with Bayleys Auckland, says tenant enquiry is coming from mixture of businesses, some of which are expanding while others are looking to rationalise their accommodation. 

“Given the slowness and uncertainty of the economic recovery, many businesses are looking for space efficiencies. For example, we are finding number of tenants have higher office to warehouse ratio than they require and are looking to trim their administration overheads.” 

Hill says leasing activity is improving, particularly at the smaller to medium sized end of the market. But landlords still need to be flexible to attract tenants. “There is quite bit of vacant space remaining in certain parts of Auckland for tenants to choose from and property owners need to be cognisant of business cashflow pressures and work with tenants to achieve successful outcome for both parties.” 

Hill says there is the increasing use of stepped rental increases in the market at present, with the annual rental gradually increasing over the term of the lease. “This recognises that many businesses are currently operating in pretty tough business environment but hopefully that will change as the economy picks up.” 

In other instances, tenants are not paying for all of the space they are tenanting at the start of the lease, good example being one of the largest corporate leases so far this year, iinvolving 7000m² of mostly warehouse space in Mt Wellington. Hill says the tenant, Glengarry Wines, will not be utilising or paying for all the space immediately but has committed to increasing its uptake further into the 10-year lease. 

Jamsheed Sidhwa, Bayleys Manukau leasing specialist, says there is more enquiry from tenants at the middle to larger end of the market, than was the case in 2010 and 2011.

“There seems more intent from businesses to do things. But tenants remain cautious and tend to have very specific requirements for premises so it is still taking lot of hard work to put leasing deals together.” 

He says businesses are also often leaving it too late in the piece to find the type of premises they want. “We would advise all companies to start looking well ahead of when they wish to relocate so the most efficient and cost effective outcome can be achieved for their type of business,” says Sidhwa. “Better planning also opens up opportunities to consider purpose-built new premises which can be just as cost effective as existing premises, if not more so.” 

Real estate agents are also reporting strong owner occupier demand for vacant and semi-vacant premises at present, as property prices and mortgage repayment costs have adjusted to level where businesses are finding cashflow benefits in property ownership rather than paying rent.

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