A local economy fuelled by a booming port, a bullish kiwifruit industry, significant road infrastructure improvements and continued strong population/housing growth should underpin Tauranga’s commercial and industrial property market over the short to medium term future.
In particular, completion of dredging to allow bigger ships in the port next year is expected to increase port capacity and lead to further demand for storage and logistics space. The meeting of this demand will be helped by the completion of the Eastern Link Road by July 2015 which will open up vast tracts of land for further development.
Within the CBD recent approval for the building of a university campus and the development of two major office schemes over the next few years should act as a major catalyst in revitalising the central city and boosting demand for retail services.
A growing divergence between prime and secondary vacancies is occurring in the CBD with very tight conditions prevailing for better grades of space compared to rising vacancies amongst secondary properties. This is prompting an increase in development activity to satisfy demand for better quality premises. Projects currently underway include the new $25m2 three level Trust Power building on the old Bay of Plenty Times site on Durham Street which will include 9,500m2² of office space, 75 carparks and will house around 450 staff. The development is a joint venture between local developer CBC Construction and site owner Zariba Holdings and is due for completion in early 2016. Trust Power will occupy around 90% of the building on a 15 year lease plus 15 year option.
Construction is nearly finished on the new $10m mixed use commercial and retail building on the corner of Cameron Road and 12th Ave which will house Westpac’s new offices. The bank is moving its area office, business banking centre and 11th Ave branch to the new centre with up to 40 of its staff relocated to the purpose built premises. It is the latest in a string of development projects in the Cameron Rd commercial precinct, which has seen the area develop into a banking and business hub with BNZ and ASB operations nearby. We understand a number of other large office occupiers are also exploring the possibly of initiating new developments in and around the CBD.
The migration of tenants to newer space will exacerbate vacancies in older buildings and ultimately lead to various forms of recycling such as refurbishment, renovation or conversion. Earthquake strengthening will need to be addressed in most of these recycling projects.
The recent green light given to the Masterplan for a Tauranga campus for Waikato University on the old Bongard site on Durham Street should be a major long term boost for the CBD. It will see nearly 6,500 students commencing studies in Tauranga between 2015 and 2035, generate an estimated $188m in regional revenue and provide more than 600 new jobs. It will also revitalise the city centre and strengthen the business case for other projects such as student accommodation (potentially through the recycling of older vacant office buildings) and the development of conference centre/hotel facilities.
The growth in suburban shopping centres over recent years has had a negative impact on CBD retailers. Vacancies amongst CBD shops are becoming increasingly visible and will take time to fill. This is being reflected in softer CBD retail rents. Seismic strengthening of many older CBD retail premises is yet to commence and is also slowing down the recovery in occupancy. As a way of attracting more people to the CBD council is considering plans to add more carpark spaces and revamp the waterfront and other downtown public areas.
Current and proposed office development activity in the CBD should improve retail spend. The influx of a further 450 staff in Trust Power’s new head office in early 2016 should provide the CBD with a major boost in work time population. Equally the development of the tertiary campus in the CBD over the next few years will bring in significant numbers of students and staff which should improve retail trade as well as the general vibrancy in the CBD.
Council is considering plans to increase the existing CBD carpark stock of 3,400 by a further 650 with a proposed $25m car park on Harrington Street which would also provide additional spaces for the needs of Trust Power and the university.
Retail along Mt Maunganui’s core shopping strip continues to perform well and reflects the compact nature of the precinct, continued population growth and flow on benefits from a growing number of cruise ships docking in Tauranga.
Strong demand for a limited supply of retail investment stock being brought to market has seen prime retail yields for both standalone shops and neighbourhood shopping centres being pushed to sub 6%.
Bayleys Research industrial vacancy survey for Tauranga has the overall industrial vacancy at 13.5% at January 2015. Vacancies vary greatly amongst the key areas with Tauriko at almost zero vacancy (0.8%) and Mt Maunganui at the other end of the scale with 17.3% vacancy.
Papamoa’s vacancy of 10.3% is largely in two buildings and agency feedback suggests that around half the space is currently under contract. Papamoa is particularly popular amongst owner occupiers in the 100m2² to 300m2² size bracket where available space is negligible.
Mt Maunganui/Port of Tauranga is by far the largest of the established industrial areas with around 310,000m2² in total gross floor area, an area similar in size to the other four major industrial areas – Greerton, Judea, Papamoa and Tauriko – combined.
Tauranga has an abundance of available industrial zoned land in and around the city totalling in excess of 650ha. This allows for significant growth opportunities going forward but also puts a natural cap on rental growth as any occupier demand is quickly satisfied with supply.
The new $400m+ Tauranga Eastern Link Road due for completion by the end of 2015 should act as a major catalyst in opening up new tracts of land for development. Longer term, development along the eastern corridor is expected to contribute around $8.5bn to the Western Bay of Plenty sub-region economy including 17,500 new homes, 450ha of industrial development and up to 100,000m2² of shops and commercial space.
Quayside, the investment arm of the Bay of Plenty Regional Council, which holds a 54% share of the Port of Tauranga, has 149ha of developable land at the Rangiuru Business Park near Te Puke and is seeking to develop it on a staged basis.
Attractively priced land and cheaper steel framing costs, have lead to an increase in storage building consents since the GFC. A rapidly improving kiwifruit industry is driving much of the strong demand for storage facilities.
The Tauriko Business Estate in particular has seen an increase in activity over the past 12 months with a number of new projects either underway or recently completed in stage 2 of the estate.
Investor demand for well located, well tenanted prime properties remains very strong. One of the larger sales recently was Brother’s premises at 27 Matarawa Place Tauriko which sold for $10.25m on a yield of 6.3%. The property has a 10 year lease in place to Brother.
Much of the investment activity in Tauranga is driven by local investors and is especially active in the sub $5m category.
Port of Tauranga Update
Port of Tauranga (POT) recently commenced a harbour and channel dredging programme that will allow it to accommodate the next generation of container ships as well as larger bulk and cruise ships. The $50m2 dredging programme will complete a $200m capital investment programme, which has seen an extension to the Sulphur Point wharves, upgrading of tugs and the addition of container cranes and straddles. Post dredging, the port will have a low water draft (i) reading of 14.5, the only port in NZ to have such a reading, putting it on similar footing with Melbourne (14.0), Sydney (13.8) and Perth (14.5).
In 2011 POT entered a freight alliance with Kotahi (a joint venture between Fonterra and Silver Fern Farms) to improve efficiencies in the supply chain. Kotahi now manages freight for more than 30 customers including exporters of meat, wool, dairy, timber, pharmaceuticals, horticulture and seafood. More recently a new joint venture arrangement has been formed between POT and Kotahi named CODA to amalgamate four of their complementary domestic logistics businesses. The aim is to optimise freight flows and better co-ordinate freight movements in preparation for the introduction of larger ships in NZ. In particular it should boost the efficiency of the nationwide supply chain, reduce wasted capacity and reduce the costs of consolidating the cargo necessary for big ships.
These initiatives should cement POT’s position as the country’s hub port and support further growth in container volumes through its handling facilities. In terms of size POT covers an area of 190.3ha split into a bulk cargo precinct (114.3ha) and an operational precinct (76ha of which 30% remains available for further expansion/development).
(i) LW or Low Water Draft determines the minimum depth of water a ship or boat can safely navigate