In contrast the local commercial and industrial property market remains relatively subdued following a significant burst of development activity and tenant reshuffling over 2012/2013. This has lead to backfill issues and increased vacancies amongst poorer grade commercial premises in both Napier and to a larger degree Hastings which will take time to resolve. One area of continued growth and activity has been in the construction of new cool store and pack house facilities to support the growth and expansion in the horticulture sector. Demand for further storage and logistics related facilities is expected to continue to grow.
The Hawkes Bay region is a major producer, processor and exporter of primary products – beef, lamb, fruit and vegetables, forest products and wine. The strong influence of primary industry is apparent within the industrial sector with the region housing a high proportion of specialist buildings such as pack-houses, cold/cool stores and controlled atmospheric buildings. These cater for an increasing number of corporate and independent growers.
The apple industry in particular is leading a mini-boom in new storage and processing facilities. A new business which has recently established a presence in Hawkes Bay is Rockit, a niche producer of miniature apples packaged in tubes and sold as a premium price snack food globally. Rockit recently invested $17m into a design and build state-of-the-art food packaging facility in Havelock North which employs over 70 people during the harvest season.Local developers are also supporting this growth with new developments such as Tomoana Food Hub, an industrial food park recently set up by a local developer on 16 ha on Heretaunga Plains with plans to develop more than 100,000m2 of factory space designed specifically to meet the needs of food companies.
The continued demand from tenants for such space has made these premises popular with investors as illustrated by the recent sales of 613 Orchard Road which was leased to Crown Relocations on a passing rent of $122,000 and 1139 Omahu Road with a mixture of industrial and plains zoned land which was sold for $1.6m to a local buyer.
A number of wineries have also committed to new facilities including Delegat Groups landmark 19,000m2 wine making facility on a 13ha site on the corner of Evenden and Ormond Roads. Villa Maria also has plans to construct a 16,000m2 facility next to Te Awa Winery in the Gimblett Gravels region.
Most of Hawkes Bay’s industrial investment stock is owned by a mixture of local private investors, developers and owner occupiers. Rents for both office-showroom and warehouse space has remained relatively flat over the past year and is expected to remain flat for the next 12 months. With plenty of appropriately zoned land available any increase in demand is readily meet with supply which keeps a natural cap on rental growth. Some softening in rents for older secondary cool store premises may occur if the supply of newer cool store facilities continues to grow.
Industrial yields for prime and secondary properties in both Napier and Hastings have also remained relatively flat over the last 12 months with a similar pattern likely over the next 12 months. Investor demand for quality well let and well constructed modern properties remains strong.
A real game changer for the regional economy would be the successful development of the $275m Ruataniwha Water storage scheme which could potentially open up a further 25,000ha’s of land to water irrigation should the construction of the dam at the upper Makaroro River proceed. The period to lodge appeals has now passed so much hinges on Hawkes Bay Regional Council obtaining commitments from farmers for 40 million cubic metres of water from a total 100 cubic metres to ensure the project will proceed. Strong interest has been expressed by institutional investors seeking equity in the project and a building consortium has already been selected. The project would take three years to build with water expected to flow by late 2019. The scheme would provide an immediate boost to the regional economy during construction and on completion would contribute around $220m to annual GDP. By comparison the local wine industry contributes around $100m to the regional economy. The project has the potential to bring in more businesses and investment and increase the diversity in the local economy. It is a significant growth opportunity with scale for the region.
Like many regional centres throughout the country vacancy levels in Napier and Hastings retail CBD’s have been rising over the past few years. The result of slower population and CBD business growth as well as increased competition from big box retailing centres and competing locations such as Ahuriri.
A report earlier this year by valuer’s Logan Stone (Feb 2015) points to the lowest retail occupancy levels in Hastings CBD since the survey was produced in 2000. Further retail closures are expected, and with weak retail demand, shop vacancies are unlikely to show any significant improvement any time soon. High profile sites previously occupied by Postie Plus , Pagani and Whitcoulls have now been vacant for more than a year. The largest concentration of vacancy in Hastings is in the 300 Heretaunga Street West block, with approximately 23% of the floor space vacancy per the Logan Stone survey. The Nelson Park large format retail centre located close to the CBD and anchored by the Warehouse and Mitre10 is drawing large amounts of pedestrian traffic from the CBD as is Kmart Plaza and Noel Leeming. Encouragingly some re-use of existing vacant CBD buildings is beginning to occur. The former Farmers building on the corner of Queen and Market Streets is being used as new retail premises for Kiwibank/NZ Post as well as a major call centre for their national operations. Equally Flex Fitness 24/7, a gym operator, has moved into the old Dulux building at 201-203 Easthorne Street West in early 2015. The property was refitted by a local developer and was leased to Flex Fitness for 8 years. More of these adaptive reuses are required to try and absorb the high levels of excess retail space.
Napier has also experienced an increase in vacancies over the past few years due to the closure of a number of stores owned by Australian retail chains (eg. Mountain Designs, Supre). The Logan Stone report points to redevelopment around the Hastings/Dickens Street intersection resulting in a number of relocations which have moved activity away from lower Emerson Street where vacancies remain high. New stores have appeared in the Central Post Office building fronting Dickens Street carpark and include Vodafone and Adoro Cafe. Redevelopment of the old Farmers building on Emerson Street and Hastings Street has seen tenants such as Cotton On and Ice Breaker take up space. Equally Farmers new location on Hastings Street has improved Hasting Streets profile as an important CBD and Marine Parade retail link.
Ahuriri, formerly the site of Hawkes Bays main port, with many old character warehouses and woolstores has been gradually redeveloped into a boutique hospitality-retail-commercial precinct which is also competing for retail trade with Napier’s CBD.
Reflecting the challenging conditions for traditional CBD retailers in Napier prime rents have remained flat over the last 12 months with little growth expected over the next year. Secondary rents have softened over the past 12 months and with high vacancies persisting in some poorer locations further softening is likely going forward.
Agency feedback suggests both prime and secondary retail rents in Hastings, which are around half the value of those of Napier, have weakened over the last year and with occupancy levels continuing to remain soft further falls are expected.
Equally yields for poorly performing retail premises in both Napier and Hastings are likely to experience some further softening over the next 12 months. By comparison investment demand remains solid for quality properties with quality tenants in buildings that have high earthquake ratings.
Activity in Napier’s CBD office leasing market remains very subdued. Much of the development activity that occurred over the 2012-2013 period was largely a reshuffling of existing tenants into better quality space along with some speculative seismic strengthening. The result has seen an increase in the total amount of office stock in the CBD and has created significant backfill issues. Vacancies amongst poorer secondary grade space are sharply higher. Equally competition from new destinations such as Ahuriri are also attracting office tenants from the CBD, one of the largest being insurance broker Crombie Lockwood who moved there in 2013. In an attempt to slow the leakage from the CBD Napier Council is limiting the office component of all new mixed use developments to just 20%.The office leasing market in Hastings CBD obtained a boost last year with the relocation from Wellington of some of Kiwibank’s operational functions, including a call centre, to the refurbished former Farmers building on the corner of Queen and Market Streets. The new facility employs 100 staff and adds significantly to the CBD’s workforce. Kiwibank pointed to attractive cost savings as one of the major reasons for the relocation. Other tenants in the CBD have chosen to become owner occupiers such as Strata Group (consulting engineers) who purchased the old Ford Motor site on 308-316 Queen Street East and are developing it with expected occupation in early 2016.
Havelock North has also been raising its profile as an office alternative. Currently one of the region’s largest mixed use projects is underway in the centre of Havelock North, Village Exchange, a $25m office-retail-hotel development.
Much of the office investment stock in Hawkes Bay has been owned by various local investors and developers for many years. Property listings and activity remain limited but when good quality properties do come on the market they are snapped up quickly. The old Briscoes Building at 206-216 Queen Street West was sold vacant for just above land value at $650,000 in November 2014. The buyer was a local developer who plans to redevelop the site into a 1,000m2 carpark and a further 1,000m2 of retail/office space.
Prime and secondary office rents in both Napier and Hastings have remained flat over the past year and this trend is expected to continue over the next 12 months. However poorer secondary space could see further downward pressure on rents.
Prime yields in both markets firmed by up to 50 basis points over the past year. Secondary yields have generally remained flat and are likely to remain static over the next 12 months.