A rapidly growing population continues to underpin the local commercial property market. The major beneficiary so far has been the industrial market where ultra-low vacancies are driving a wave of new development activity. Works have also commenced on Hamilton’s ‘transformational’ inland freight hubs at Ruakura (following the announced joint venture between Waikato-Tainui and LINX Cargo Care Group) as well as Port of Auckland’s site in Horotiu to the north of Te Rapa. Both will be a huge boost to the city’s long term economic and employment prospects.
After many challenging years green shoots are also appearing in the CBD with higher levels of office construction and refurbishment activity increasing confidence and visibility in the city centre. Growing demand for better quality office space has been the driving force behind the increase in activity with occupiers prepared to pay a premium for such space.
The fast growing North East and North West residential suburbs are also creating increased demand for neighbourhood retail centres which are recording stronger rent and value growth. To the south, a recent shot in the arm, via a $272 million allocation from the Governments recently announced Housing infrastructure Fund will go a long way in providing network roading and water infrastructure for an additional 8,100 new homes. This will potentially open up further commercial property opportunities in what has been an overlooked area of the city.
The latest Bayleys Research industrial vacancy survey for Hamilton shows that conditions remain extremely tight across all of Hamilton’s major industrial areas.
As at June 2017 the overall vacancy rate was an ultra-low 2.8% ranging from Te Rapa North at just 0.4% to Frankton at 3.3%. Not surprisingly under such tight conditions the supply pipeline continues to grow with new industrial consents, by $ value, up 120% to $50 million.
The push to establish Hamilton as a major inland freight hub between the ports in Auckland and Tauranga is also gathering pace. Works commenced earlier in the year on Port of Auckland’s 33ha Horotiu site to the north of Te Rapa. The land is adjacent to KiwiRails main trunk line and will create around 300 jobs when completed. The first freight handling facilities are expected to be in service by early 2018 with likely flow-on benefits to the nearby Northgate development zone. Mainfreight established their logistics base in Te Rapa a few years earlier.
At Ruakura to the east of Hamilton, earthworks commenced in April 2017 on the first 6ha stage of the 30ha inland port (part of Waikato-Tainui’s larger 480ha Ruakura land holding which is planned for long term staged development over 20-30 years). In June, Waikato-Tainui announced that Tainui Group Holdings (Waikato-Tainui’s commercial company) joined forces with LINX Cargo Care Group and one of its subsidiaries C3 Limited (NZ’s largest on-wharf logistics company) to develop and operate the new port. The 50/50 joint venture will take an initial 30 year lease on the inland port land (subject to OIO approval) with the first 6 ha’s of the inland port on track for opening in early 2019. The entire 30ha port is planned for completion by 2041 and will be capable of handling around one million 6-metre containers a year. The freight hub will have easy connections to the East Coast Main Trunk Line and to the new Waikato Expressway via a full diamond interchange.
Both projects are a major confidence boost for Hamilton’s long term economic outlook and will bring further employment opportunities to the city.
With current industrial vacancies so tight, rents for better quality space are expected to show further upside over the next 12 months. Investor interest remains strong across the board with owner occupiers and local investors continuing to dominate activity.
Optimism in the office sector is definitely improving. Demand for better quality CBD office space is growing and the development sector is responding.
At the larger end of the market recent projects have included Genesis Energys move to locate 600 staff to new premises at the former Countdown Supermarket site on Bryce Street, the Department of Corrections consolidating 6 sites and some 190 staff into one new building at 150 London Street and Waikato District Health Board (DHB) confirming it would take space in the old Farmers building on Alexandra Street. Around 700 DHB staff will move from a number of locations (both within and outside of the CBD) into the new location towards the end of 2017 once extensive external and internal refurbishment works have been completed. Media reports point to DHB signing up for an initial 12 year lease term with multiple rights to extend in the future. A new ASB regional centre being built on the corner of Bryce and Barton Streets and due for completion by mid 2018 will house 90 staff.
There are also an increasing number of smaller, more bespoke projects, occurring across the CBD. Many involving the stylish refurbishment of older, character filled office properties. These projects are creating a lot of confidence and visibility in the CBD. In fact increased occupier demand for quality refurbished space has seen competition amongst developers for older ‘do-up’ stock increase and prices to rise.
Property developer Matt Stark has been one of the driving forces in this area with a growing list of office/retail properties attractively refurbished and repositioned. His current projects include the redevelopment of ‘the Riverbank Lane’ (298 Victoria Street) which aims to link the complex with the river and includes both office and retail offerings; the refurbishment of Wiseman Central (the former Beggs Wiseman Building) which is hoped to act as a catalyst for further rejuvenation of Ward Street and nearby buildings and the recent refurbishment of Panama House (15 Grantham Street) into an attractive coworking offering.
With occupier demand firmly focused on better quality space the gap between prime and secondary rents is expected to widen. Vacancies in poorer quality office space continue to be a challenge. Going forward we would expect more of the secondary office stock, especially to the north of the CBD, to be eventually recycled into other uses particularly higher density residential.
Investment conditions continue to remain tight. Strong developer, local investor and increasing out-of-town demand is ensuring yields continue to remain tight. Recent office sales include the 1,461m2 recently built 233 Anglesea Street Hamilton to a private investor for $4.7million on a yield of 5.3% in March 2017. The property is fully let to 3 tenants – Mike Greer Homes, the Public Trust and Te Raumatatini – has 24 carparks in total and is returning circa $255,000pa.
Last year saw significant ownership changes surrounding the city’s major shopping malls. This year was more focused on the growth in demand for new neighbourhood centres as Hamilton’s population continues its rapid growth, especially to the North. To date retail construction in the suburbs is not keeping pace with this growing demand, pushing rents and values higher. An example of recent neighbourhood developments include the new retail centre and Bunnings Warehouse on Kahikatea Drive servicing the Melville and Frankton area.
CBD retail conditions remain challenging and will be further impacted when the IRD pulls 500 staff out of the central city over the next 1-2 years and moves them to Te Rapa. However some of the impact will be offset by a number of other major office occupiers consolidating operations in the CBD as mentioned earlier. Longer term ,CBD residential activity will also provide further support for the CBD retail sector.
Momentum is also picking up on a number of projects to beautify public spaces in the CBD which should improve the attraction of the CBD for both shoppers and workers. These include:
1. Plans (subject to Council approval) to redesign Garden Place which have been put forward recently by a group of property investors who would also fund the project; and
2. The recent commencement of works by the Council on the ‘Victoria on the River’ project which will include the creation of links to the river, landscaping and planting. The project is expected to be completed and opened early next year.
With the exception of neighbourhood centres, Hamilton retail rents and yields have generally remained flat over the last 12 months with a similar pattern expected for the next 12 months.
An analysis of Hamilton’s retail spend over calendar 2016 shows the largest share (34%) comes from consumers residing in the north. A trend which is likely to continue over the next few years as these suburbs remain the major beneficiaries of population growth.