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LETS GET DOWN TO BUSINESS.

Question :
We are looking to sign up a 3-5 year commercial lease in the next 4-6 weeks in Auckland. Due to the current environment we can see significant downward cost pressure on retail leases – what is the view on industrial? Will there be a softening due to reduced demand? Any thoughts or crystal balls out there? Much appreciated. Thanks

Question submitted 01/05/20 @ 08:08am
Industry: Property
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  • Hi there. Our view on industrial is very positive. The trend of online shopping is going to only increase this demand for this asset class.

    You can check out a few of our recent views on http://www.bayleys.co.nz/workplace – there is a dedicated industrial section there. It is also worth checking out Scott Campbell on LinkedIn. He is the National Director of Industrial and is frequently posting the latest, up to the minute news.

    All the best.

    Hi there. Our view on industrial is very positive. The trend of online shopping is going to only increase this demand for this asset class.

    You can check out a few of our recent views on http://www.bayleys.co.nz/workplace – there is a dedicated industrial section there. It is also worth checking out Scott Campbell on LinkedIn. He is the National Director of Industrial and is frequently posting the latest, up to the minute news.

    All the best.

    Hi there

    Good question and it is a topic that has a lot of people talking. Firstly it is early days and we are entering a completely new market that we have not been in before. Having said that here are some considerations for the Industrial sector that might be of use.

    • The industrial sector has many defensible qualities. While there could be some disruption in the short term, history shows the resilience of the industrial sector over the long-term.
    • Vacancy rates were at extreme lows and the supply pipeline was limited pre-COVID-19 which will
    provide a buffer against any significant rise in vacancy that may occur.
    • The rise in online retailing will create new opportunities for new and existing businesses as well as
    logistics and warehousing on a massive scale. Some of this activity is already underway.
    • Manufacturing is a key driver of innovation and R&D, which will be a major focus to assist with GDP
    growth and productivity gains.
    • Infrastructure looks set to be a prominent focus for the Government to stimulate economic growth
    after the lockdown.
    • Non-income generating assets such as vacant industrial land could face a decline in values, albeit
    significant value appreciation in the last few years will help assist some investors.

    Lastly if you are looking at a new lease it is important that you know your new Lessor and are comfortable with them. If so then you need to review the lease and make sure it has all the provisions you need for your business in the future.

    Happy to discuss further and we also have new research being released TODAY.

    Good luck & great to see you are helping get NZ back in is feet.
    Chris Palmer
    Colliers
    021558355

    Have you thought about code sharing or PPL your requirements? Its good way to reduce risk/commitment while you work through the current environment. I know of a warehouse, good operators, Airport area looking to sublet should it be of interest? best Stefan 021 930 916

    Week one of alert level 3 has been very busy for my industrial agency team each conducting a number of viewings this week showing signs of the economy waking up. Salespeople are eternal optimists of course, but I do believe this is somewhat of a bounce effect from the pent up levels of enquiries over the alert level 4 lockdown. Using the trusty crystal ball, I think it would be optimistic to think the same activity levels in terms of tenant demand to continue over the coming weeks.

    Chris’ comments above are excellent noting Industrial stock is definitely the star performer of the 3 main commercial property types (office and retail being the other two). Lloyd is right also, the e-commerce market is booming and the back end of that is underpinned by the industrial property to support the supply chain network associated with online shopping.

    However, the market is more of a Tenant’s market right now kicked off by the rent concessions offered by many astute landlords realising they need to retain and support their tenants to meet their own financial commitments.
    Lease incentives have not been prevalent pre-lockdown, but, we are already seeing rent holiday requests, reduced face rents, prior access clauses and shorter terms being offered to give tenants greater flexibility and financial support. The latter point would be a good one for you to think about when committing to a 3 – 5-year lease term. We are working with a number of businesses keen to get back up and running or expand based on the surge in online shopping activity, they are unsure how long this will continue and are asking potential landlords to work with them to offer an initial shorter-term trial phase, before then committing to a longer lease term once there is greater certainty around their particular market place.

    As a business owner, the first thing businesses did at alert level 4 was review their financials and look at cost-cutting initiatives wherever possible. Rent is generally the 2nd highest business expense behind wages and salaries and it is already clear businesses are looking closely at optimising their existing space or look to cheaper rent offerings for like for like stock advertised in the market place. Make sure you do your homework on the rates available in the areas you are looking at leasing. Think about the initial term you are willing to commit to- Landlords are generally more amenable to incentivise you to make a longer-term commitment so there is upside to the 5 year term you discussed, I just want to play devil’s advocate with you to ensure you play your cards right.

    Cheers!

    blairjames@jamesgroup.co.nz

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