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North Shore’s Demand vs Supply vs Price

Geoff Thorne
Geoff Thorne
Commercial Sales & Leasing Consultant

An update from our North Auckland specialists Geoff Thorne and Rene Geertshuis on industrial land and new builds north of Auckland Harbour Bridge.

It is often said “they are not making any more land” and how true this is at the moment, especially in the northern area of Auckland.

Having no more industrial land available has the unintended consequence of fewer new buildings being built to satisfy the huge demand. So here is the equation; the shortage of industrial land means a supply and demand price rise of unbelievable amounts. For example, industrial land at Silverdale, a year or two ago was valued at around $650 to $750/m² plus GST. Today, we are seeing vendors looking for over $1,000 to $1,200/m² or even more.

New buildings are obtaining $6,000/m² and higher, up from $4,500m² a year ago. This is just over a 33% increase in 12 months.

The same has occurred in Hobsonville where a new industrial area is evolving. This has been very successful, but developers now urgently require more land to satisfy the demand from tenants and owner- occupiers.

This demand and price increases, combined with building cost escalations, has seen new rental rates which could not have been imagined but must be applied for these new buildings to be viable.

There is plenty of evidence of these massive increases in the cycles of the property development business and each time we think ‘how much higher can they go?’ Well, there is no limit as the price is not really determined by the purchaser (new builds) but by the cost of the finished building.

We are seeing off-the-plan sales being cancelled as cost increases, which doesn’t allow the developer to make a required margin to satisfy the financier of the development. The developer then must make the decision of launching the development at a higher price, change the design or even sell the project to another party who thinks they can make it work.

Recently, while in conversation with a long-standing, experienced developer, he mentioned an industrial development in Sydney’s Eastern suburbs he completed back in 2001. During that time industrial buildings were selling for around $3,000/m², the same price that Auckland was selling new industrial buildings for about 7 years ago. He sold the entire development of 25 warehouse office buildings at $4,500/m², an unprecedented price, and after being warned by valuers that they would not sell. Why? Because there was a massive demand and very little supply, which is where we are finding ourselves in now.

The takeaway from this is that time is our friend and while demand is there, if the building is suitable for the owner or tenants needs, they will pay the price and inflation will take care of the value over time.

We expect to see continuing price escalation and demand, making industrial property a strong investment for either an owner-occupier or an investor.

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