There is real momentum in Tauranga’s commercial and industrial property market. Spurred on by strong population growth, a booming residential construction sector and increased tourist and Port activity the stars certainly look to be aligning for the region.
These positive conditions are being reflected in very solid economic and jobs growth. Infometrics numbers point to real GDP growth for Tauranga of 4.4% for calendar 2016 and a significant 6% for the Western Bays District, well above the national average of 2.5%. Employment growth has been equally robust at 4.8% for Tauranga (5.9% for the Western Bays) compared to a NZ average of 2.7% per Infometrics.
Areas of significant future growth are expected to be concentrated to the South, around Papamoa, where the Tauranga Eastern Link has increased the attractiveness for more business and residential growth and further west, around Tauriko/The Lakes.
The revitalisation of Tauranga’s city centre is taking shape with the recent completion of the waterfront development, including tidal stairs, a pier and pontoons and planned streetscape upgrades over the next few years. Other major projects include construction of a new 42 apartment Quest Hotel on Devonport Road due for completion later this year and plans, still being worked up, for a new council administration building, new museum and performance venue as well as a major upgrade of the city library. All will add a much needed refresh and reinvigoration of the city centre.
On the education front, the expected completion of the Waikato University campus in 2019 will ultimately bring 2,000 students into the city centre and significantly transform the CBD. Private developers are already moving quickly to cater for the expected demand for student accommodation. QP Property Holdings recently lodged an application with council for a $40 million tertiary accommodation complex at 145-153 Durham St which will have 392 rooms over 12 levels. A resurgence in inner city apartment living is also leading to a growing pipeline of apartment projects which will further contribute to a more vibrant city centre. However all this activity will clearly throw up challenges, the largest in the city centre being the current undersupply of off-street parking. This will need to be addressed.
Port activities continue to boom with more than 1 million containers expected to cross Tauranga wharves (a NZ first) in the current financial year. Solid growth in export volumes for the Port’s key commodities, being logs, dairy and kiwifruit are driving this momentum. Increasingly more exporters, importers and shipping lines are recognising the benefits of Port of Tauranga’s deep water port and efficient freight handling facilities – consolidating its position as port of choice for international shipping lines. Hamburg Sud recently announced it will introduce a big ship, peak season weekly service, with Tauranga as its only NZ call.
A strong local economy has seen demand for office space across all quality grades and size ranges rise over the past 12 months. This has triggered a supply response from developers with increasing amounts of prime space coming onto the market. Short term this has created digestion problems with around 5,000m2 of better quality new and refurbed space still available for lease. As a result prime rents have softened marginally over the past year and are expected to run flat until this space is absorbed.
Recent completions include a new $40 million 7,800m2 five level office/retail complex on the corner of 3rd Avenue and Cameron Rd developed jointly by Tauranga based Manor Group TGA and Auckland based Watts Group Investments. The complex is approximately 50% leased to date. Earlier in the year a new $4 million three level (circa 2,400m2) building was completed on Second Avenue housing Employment NZ and the Avonmore Tertiary Institute. A major refurbishment (including seismic strengthening) is currently underway on the five level, 2,750m2 South British House at 35 Grey Street in the city centre and should be completed by the end of the year. Space in the building is being offered for lease at $250m2 gross. Further north on the corner of Harrington and Willow Streets a new $10 million two level retail/office complex named The Reserve is currently under construction and due for completion in early 2018. A smaller project (circa 500m2) is also underway along The Strand and should be completed mid 2018.
Lack of sufficient parking around the new commercial hub on Cameron Road has lead local property investment company, Troop Investments, to build an additional 250 new carparks over 5 levels next to the ANZ building bringing the total to 430 parks available for tenants and neighbouring users. The parks will be all fully tenanted on completion in December 2017. Car park rates in the city have increased from $25 – $30 p.w. to $40 – $55p.w. over that last two years.
Investment demand from both local and out of town investors remains strong across the board ensuring cap rates remain tight. The real challenge continues to be a lack of stock to satisfy demand.
A buoyant mood certainly prevails across the retail sector and is reflected in the latest Bay of Plenty Paymark figures for the March 2017 quarter which show retail spending by value up 8.5% and 9.7% by volume compared to the same quarter in 2016, the highest increase in the country. Tourism and hospitality were the major growth sectors.
A rapidly expanding population base is leading to a growing pipeline of new residential subdivision releases which is driving a surge in suburban retail development activity. The largest of these includes stage 1 of the Tauranga Crossing which opened in September last year and totals 17,000m2 of retail (anchors: Warehouse, Warehouse Stationery, Noel Leeming and Pak’nSave) with 780 carparks. Construction of the next stage totalling a further 27,000m2 will commence later this year and is expected to include an enclosed mall, new dining and entertainment area with an Event Cinema complex. Across the road from the 11ha Tauriko Crossing site is a further 6ha site which the same owners are currently developing into a 23,000m2 large format retail complex called The Depot. The focus will be on home and lifestyle with completion expected late 2017. Ultimately all stages of this ambitious regional centre will be underpined by a local workforce of 5,000 people and The Lakes residential estate which will eventually be home to 7,000 people upon completion.
Other recently completed centres include the $12 million Pyes Pa retail centre on Pyers Pa Road, a major 1,315m2 development in central Mount Maunganui called Mount Central and upgrades for shopping centres at Bethlehem and Papamoa.
Tauranga’s CBD retail landscape is set to change over the next few years with the completion of the Waikato campus, upgrading and development of a number of Council facilities and growth in inner city apartments. As a further sign of confidence the owners of the Farmers Department Store on the corner of Elizabeth Street and Devonport Road have purchased a number of surrounding sites and are planning a major consolidated development to showcase the new format Farmers and other retailers in the stable including, Stevens Homeware, Whitcoulls and Pascoes. It is likely the project will take at least 2 years to develop and may also include apartments on the upper levels. During the development phase the Farmers store will relocate to Tauriko Crossing.
Retail rents remain relatively flat in the CBD with a similar pattern expected over the next 12 months. Recent supply increases in a number of suburban centres will likely put a cap on rental growth until all space is absorbed. By comparison Mt Maunganui retail rents continue to record solid growth underpinned by both local and tourist/cruise ship trade. Strong demand for a limited supply of retail investment stock has seen yields remain very firm. A number of recent sales of smaller, standalone shops in Mt Maunganui have sold for sub 5% yields. These include 260-272 Maunganui Road Mt Maunganui which sold for $7.1 million on a yield of 3.69% in May 2017 via an unconditional tender.
The latest Bayleys Research industrial vacancy survey for Tauranga shows that conditions remain tight across all the major industrial areas. As at May 2017 the overall vacancy rate was a low 4.4%, down from 5.2% a year earlier. The only area to still record a double digit vacancy is Judea at 10.3% with little movement over the past 12 months. All other industrial areas recorded falls in vacancies: Greerton from 7.6% to 5.9%, Mt Maunganui 4.3% to 3.6%, Papamoa 5.5% to 5.3% and Tauriko a very tight 0.3% from 0.4% a year earlier.
Strong business growth and new business formations is being underpinned by high levels of population growth to the region which, in turn, is generating increased construction and economic activity. This, along with a booming Port, is underpinning the positive fundamentals for the industrial property sector.
Uptake of land for development at Tauriko has been very strong with Element IMF, the developers of the Business Estate, saying sales are well ahead of their 10 year average. They are now busy unlocking future stages 3 years earlier than they had expected. All 2017 lots have been sold and they are currently pre-selling 2018 titles. Over the last 12 months there was an 75% increase in businesses based at Tauriko Business Estate from 52 to 91. There are now over 2,000 people that work there everyday, a 27% increase since Jan 2016.
Mt Maunganui’s industrial precinct is dominated by Port related activities, and with container volumes expected to exceed 1 million in the current financial year, more space in the precinct is being used for container storage. Increasingly land which the Port previously leased to external businesses is being progressively taken back for their own logistics/distribution purposes. As a result vacancies are expected to continue to remain very tight going forward.
Further growth in Papamoa’s industrial area is likely to be limited by the encroachment of residential development. Being so close to Papamoa beach, many developers are clearly taking the view that the highest and best use for surrounding land is residential. Higher vacancies in Judea reflect the older, more secondary nature of much of the industrial stock in the area.
Industrial rents have generally remained stable over the past 12 months although new build rents have shown some growth due to rising construction costs. Generally though, growth in industrial rents is limited due to the abundance of available industrial zoned land in and around Tauranga. This allows for significant growth opportunities going forward but also puts a natural cap on rental growth as any occupier demand could potentially be quickly satisfied by supply.
Investor and owner-occupier demand across the board remains very strong especially in the sub $5 million category. Much of the activity is driven by local investors, although out-of-town investors are also increasing their visibility. Yields remain tight.
Spotlight – Road upgrades to bring significant future benefits
The past few years have seen more than $650 million of major road infrastructure projects around Tauranga either completed or initiated. These projects are vital for the region and lay the foundations for further urban and economic growth by easing freight movements, reducing congestion and improving safety.
Major initiatives include:
- The successful completion of the $455 million Tauranga Eastern Link (TEL) 4 lane motorway in July 2015 covering 23km from Te Maunga junction in Tauranga to Paengaroa.
- The $45 million Maungantapu Underpass currently under construction and due for completion mid 2018, connecting Welcome Bay with Turret Road and separating SH 29A traffic from local traffic
- The $102 million Baypark to Bayfair Link Upgrade which will see two flyovers built on SH2 by 2020 (one will take SH2 over the Maunganui-Girven roundabout and the second will take SH29A over the railway line and the Te Maunga intersection). It will reduce congestion and improve safety by separating local and state highway traffic and improve the route to the Port of Tauranga. Importantly the Baypark to Bayfair Link Upgrade will also connect to the TEL, completing what is now as the “Eastern Corridor’ for the Bay of Plenty
- The $62 million sale of the 5km Takitimu Drive Toll Road (formerly Route K Toll Road) by Tauranga City Council to the Government freeing up funding for other key council projects. The Toll Road bypasses the Tauranga city centre and takes traffic from SH29 to SH2 in the direction of the Port of Tauranga and Mt Maunganui.