Please see the overall commercial comment for additional context.

The Hawkes Bay industrial sector has been easily the most sought after in recent years. Hawkes Bay industry primarily services the food industries and local service/construction industries. Both are sectors which are facing little structural change (unlike retail and office) and both have been strong performers before and after Covid-19.

Rents for industrial property have risen sharply as demand for space outstrips supply. Low vacancies have been a constant market feature in recent years.

Industrial land development has expanded in recent years from being primarily clustered within Onekawa, Pandora and Omahu, out to Irongate and Awatoto on the fringes of Hastings and Napier. That said, the supply of land has been far outstripped by demand, which saw strong value growth from 2015 to 2020, but record value growth during 2021 and early 2022.

Values for developed industrial property have been very strong, easily outperforming retail and office, with values having roughly doubled since about 2016, as shown on the charts above.

We are starting to see the first signs that the market may be reaching equilibrium, with demand and supply coming into balance.

The industrial sector has seen little value premium for strong lease terms, due to unsatisfied demand from owner occupiers. However, as interest rates rise it is likely owner occupier demand will soften, and we expect to see a growing margin develop between well leased property and vacant/poorly leased property.

Our opinion is that the Hawkes Bay residential market performance can be a lead indicator to Hawkes Bay industrial market values. This is because a material driver of industrial demand is from the residential construction and service sector. With residential market having fallen in recent months, there may be a fall in demand and potentially softening in values in the industrial market for the first time in many years.