Hamilton’s commercial property market continues to build on the momentum of the last few years. The primary driver of demand remains a booming population which shows little sign of slowing. This growing population base is feeding further retail spending, business growth and construction activity.
Plans to convert even more farmland into new, mega residential subdivisions to the north (Te Awa Lakes – 1,000 homes) and to the south (Amberfield-Peakcocke 1,000+ homes) will underpin construction activity for many years to come.
To date the industrial sector has been the major beneficiary of this growth with manufacturing and storage space in high demand. Also generating considerable demand is Hamilton’s evolving role as a freight ‘transit-hub’ (between Auckland and Tauranga) for a growing number of distribution and logistics operators.
Within the CBD churn amongst some of the larger office occupiers has created demand for more high-spec office space, with a number of local developers responding. As well as providing a much needed refresh of the CBD the process has also resulted in a string of fashionable food and beverage offerings opening, drawing both the office crowd and others to the city centre.
Hamilton City Council’s push to reconnect the CBD with the Waikato River looks to be gaining traction with a number of recent office/retail developments re-orientated towards the river, one of the largest being the Riverbank Lane complex by Matt Stark. which compliments Hamilton City Council’s Victoria on the River development. Council has also allocated $7 million in year one of their latest 10 year plan (2018-2028) for the strategic purchase of a number of tired commercial properties on Victoria Rd (between VOTR and the proposed new Regional Theatre). Should this plan proceed it could act as a major catalyst for further revitalisation of the area.
At the northern end of the CBD the council’s plan to encourage recycling of older commercial properties into higher density inner city housing looks to be working. A growing list of townhouse and apartment projects are underway around Angelsea and Rostrevor Streets which are adding another positive dimension to the rejuvenation of the city centre and helping to reduce the CBD’s overall footprint.
Visitor accommodation in the CBD is also being addressed with plans for a new hotel/mixed-use development on the former Les Mills gym site on Victoria Street. The proposed 13 level tower would include a 166 room hotel on 7 levels, serviced apartments on 2 levels, some commercial and retail space as well as 60 carpark spaces. Tainui Group Holdings (TGH) has announced plans for the Novotel Tainui Hamilton Hotel to undergo a 40 room expansion with completion due sometime in 2019. The existing Sudima Hotel on Victoria Street has also undergone a major refurbishment.
The past couple of years has seen a number of sizeable CBD office projects completed with more either under construction or proposed. This complements the wave of smaller, character refurbishments that have also occurred over this time, all of which are enhancing the appeal and vibrancy of the CBD.
The resulting rotation of larger occupiers into better quality space has seen new rental benchmarks being set and a widening of the gap between prime and secondary rents. Vacancies in better quality space have tightened while those in poorer grades continue to be challenging. For many of the poorer, off-centre and low earthquake rated properties recycling in some form will ultimately be the best option.
Investor demand for better quality properties remains strong, as does demand for older, well located character buildings with redevelopment potential. However supply is limited. Strong developer, local investor and out of town demand is ensuring yields continue to remain tight. Recent office sales include 115 Rostrevor Street and 46 Bryce Street Hamilton.
The squeeze continues in the industrial sector. Bayleys Research latest industrial vacancy survey shows conditions remain extremely tight. As at September 2018 Hamilton’s overall industrial vacancy stood at 3.0% up slightly from 2.8% a year earlier. The increase was largely due to one major vacancy in Te Rapa South on the date of the physical survey. This vacancy has subsequently been leased resulting in an adjusted overall Hamilton vacancy of 2.3%. Frankton’s industrial vacancy fell to 2.2% compared to 3.3% a year earlier. Vacancies in both Te Rapa North and South remain minimal.
Despite significant growth in industrial building consents over the past few years, demand for well-located properties close to transport arterials continues to be strong. A lack of space in centrally located industrial precincts is driving growth further afield to areas such as Horotiu to the north and around the airport in the south where demand at the more affordably priced Titanium Park has gathered pace.
The underlying driver of occupier demand continues to be growth in Hamilton’s population base which is driving business growth and overall construction activity. We see little to indicate this population growth will slow over the next couple of years, ensuring conditions continue to remain tight.
In fact completion of all sections of the Waikato Expressway (expected by 2020) and commencement of works on select sections of the Southern Link Roads over the next few years will further improve freight flows, and add to the attraction of Hamilton’s industrial property sector.
The city’s growing role as a freight ‘transit-hub’ between Auckland and Tauranga is also generating considerable demand from an increasing number of freight and logistics operators. Ports of Auckland, for example, has recently announced the first tenant (Open Country Dairy Ltd) for its new 33 hectare freight transport hub in Horotiu.
Industrial rents continued to show further upside over the past 12 months especially those for new builds reflecting, in part, rising land values and construction costs. Occupier demand across the board continues to remain solid.
On the investment side demand also remains strong. The challenge continues to be limited stock to satisfy this demand with competition amongst local investors, occupiers and outside buyers remaining intense. Two examples of recent sales include 1000 and 1006 Te Rapa Road, both of which transacted at circa $1,153/m2. Yields in the 5-6% range are now the norm for prime quality industrial property.
Spotlight – Ruakura Update
Following a recent meeting between Bayleys Research and Tainui Group Holdings (TGH) the following update on Ruakura was provided:
• Progress on Ruakura inland port Stage 1 – the port will commence operations following the opening of the Hamilton section of the Waikato Expressway and realignment of local sub-roads. The timing will allow TGH to construct a significantly larger rail siding at Ruakura than in the original design after taking on board feedback from prospective major customers, tenants and ports. As a result Ruakura is planning to accommodate 800 metre trains from day one, the longest trains servicing the ECMT line.
• Prospective tenants/customers – TGH has Memorandum of Understandings signed with four major tenants including an anchor and sub anchor (details confidential). With LINX and C3 coming onboard TGH has access to their customer networks and relationships. TGH is also in discussions with a number of major freight-reliant businesses about moving to Ruakura or using the inland port. There is a pool of conditional interest as well as tenants whose timing of existing leases puts them into contention in the later stages of the development.
• Most active enquiry – primary enquiries are from companies with a significant distribution component: logistics, light manufacturing and medium to light industrial service. Retail enquiry has been high, but is a few years away as TGH work through the port, logistics and Silverdale industrial stages first.
Population growth continues to underpin retail spending in Hamilton. Consumer confidence is holding up well with the latest Paymark retail spending patterns for Waikato showing both volume and value growth up 7.2% and 8.2% respectively in August 2018 vs August 2017. Growth in new residential subdivisions to the north of the city have supported retail trade at the larger centres such as The Base and Te Awa. Smaller neighbourhood development activity has also picked up to the north as the population base has increased. Recent examples include Portland Park on Wairere Drive. We expect interest and activity within the neighbourhood sector to continue to grow especially if some of the larger proposed residential subdivisions such as Te Awa Lakes (1,000 homes planned on 51ha’s in Horotiu) are approved. Equally, should the proposed 1,000 dwelling Amberfield subdivision (which forms the eastern portion of the larger 720 hectare Peacocke Structure Plan to the south of Hamilton) proceed the need for additional retail, especially neighbourhood type centres, will continue to grow.
Confidence in CBD retail is also looking more positive, with occupancy improving. Pockets of underperformance remain especially in poorer quality, secondary locations, but within the main thoroughfares where increasing levels of rebuilding is occurring retail activity is gaining more traction. The steady stream of office refurbishment and development activity is spurring a new wave of retailers to the CBD including names such as Lululemon and Ruby. A growing number of new food and beverage offers are also appearing, many encouragingly, orientated towards the Waikato River. Should plans for a new Regional Theatre fronting the river on Victoria St proceed this would certainly act as another major CBD drawcard, underpinning the retail offer. As the number of attractions in the central city increase, demand for parking will also increase. Going forward the challenge will be ensuring the central city has enough conveniently located carparks to cater for further growth in demand.
Hamilton retail rents, especially suburban and newer CBD offerings, have recorded further growth over the last year and are expected to show continued, albeit slower growth over the next 12 months.
Yields have firmed for all but poorer, secondary CBD retail properties. Investor demand remains strong for all types of suburban property and better quality CBD retail property.