The industrial evolution of Christchurch. Research whitepaper March 2015

Transcription

1 The industrial evolution of Christchurch Research whitepaper March 215

2 Executive Summary Long before the Canterbury earthquakes, a trend toward Christchurch becoming the industrial hub of the South Island was emerging. The earthquakes have acted as a catalyst in this evolution, accelerating the centralisation and growth of South Island industrial operations in the Christchurch market. This growth has sparked significant change unlike anything that has been seen before in the South Island and conceivably greater than that seen on an even wider, Australasian scale. This level of change would otherwise have occurred over a far lengthier and drawn out period of time. As a result of this evolution, Christchurch has had to adapt quickly and in doing so has become the industrial Mecca of the South; being attractive to both investors and tenants owing to a number of key factors: Christchurch is the second largest city in New Zealand, over 55, people reside in the greater Canterbury area providing a significant labour pool for businesses to draw upon. Christchurch has the second largest manufacturing sector in the country with manufacturing forming the largest proportion of regional GDP (R.E.A.R 214). Canterbury is the fastest growing regional economy in New Zealand due to the earthquake rebuild and the expansion in agricultural production. A $5 billion rebuild is underway with approximately $15 billion attributed to the commercial sector and $5 billion allocated to infrastructure. $1 million is being spent per week on the rebuild (CECC). New industrial premises are being built at 1% of code providing certainty for both the owner and occupier. There is an ample supply of serviced industrial land in a variety of locations awaiting development. New tenant profiles and leases are prolific. There are a range of new buildings and businesses while existing businesses are expanding and require new premises/lease terms. Christchurch has easy access to an International Airport and the South Islands largest Sea Port at Lyttleton as well as an established rail network to other South Island locations. 99.5% of New Zealand s trade by weight is shipped through seaports putting Christchurch in the box seat for container freight to and from the Island. Significant infrastructure upgrades will facilitate industrial land uses. Most notably the $6 million Roads of National Significance motorway upgrade which will link freight to the northern and southern motorways around the city and through to the port cutting driving times and congestion which is significant considering 98% of freight is now on-road when transported domestically. Changes in planning and land use recovery are underway to cater for continued industrial growth and development in various locational nodes around the city. Prime yeilds in the range of 6.25%-7.75% are driving capital value growth and accentuating the attraction of Christchurch s industrial market as a viable option for international domestic and local investment. Yeilds are still 1% higher than Auckland making Christchurch an attractive alternative. 2

3 Pre-quake, the Christchurch industrial market was looking at 2-25 years of sustained growth as a result of the protein to Asia movement. New Zealand as a whole and the South Island in particular have the potential to act as a food warehouse for the Asia Pacific region in terms of protein production (meat & milk) with the processing, storage, transport and logistics of these goods and the associated service industries being a significant historical driver of the Christchurch industrial market. The World Health Organisation has identified a strong correlation between the level of income and the consumption of animal protein. As a middle class emerges and expands in developing countries, the demand for animal protein from New Zealand will undoubtedly increase. We see the protein to Asia movement continuing to be a strong underlying driver for the industrial activity which services this sector of our economy within Canterbury. Christchurch has experienced the additional impetus provided via earthquake related growth particularly in the construction, manufacturing and storage sectors. As it stands now, we see how Christchurch is primed as the Distribution Centre of the South Island and anticipate centralisation of industrial outposts into Christchurch in the coming years Central plains water enhancement scheme The CPWS will have significant flow on effects into the industrial sector as it becomes operational. The scheme will provide water to 6, hectares of the Canterbury Plains between the Waimakariri and Rakaia rivers. The current estimated build cost is $385 million with the first stage due for completion in 215 providing irrigation to 23, hectares. GDP Growth projection Canterbury GDP increased 33.5% from 27 through to 214, with a 6.% increase to the year ended March 214. Growth in Canterbury s GDP is largely attributed to the strength of the construction and dairy industries. NZ GDP growth actual and forecast We anticipate only moderate Rent increases throughout 215. $11 - $125/sqm Yields see further decreases into % % with ground-breaking prime yields seen achieved through 214. Expect sales in this range for quality stock with a good lease structure. We expect to see more investment from outside the region and off-shore as the merits of the Christchurch industrial market are realised. Industrial vacancy is remaining static at current levels and potentially increasing in places where tenants vacate secondary space for new or prime space. Vacancy will not be a major issue for standard A and B grade space however very large premises, older C and D grade buildings and buildings with an NBS below 67% are likely to struggle due to the flight to quality seen in the post-quake environment. $18-$28 /sqm mark Construction Costs forecast by the RBNZ to increase at a decreasing rate. Significant increases through 213 and 214 have put pressure on the feasibility of new development as increasingly higher rentals are required to justify new developments. There is enough Land supply to last 25 years based on historical uptake. Increasing build costs are eating in to developers bottom lines meaning there will be no capacity to pay more for the ample supply of land available. Tenants contemplating new premises have numerous options for development with a variety of industrial subdivisions competing for their business offering a range of options including freehold bare land, design/build and leasehold options Capital Values In light of increasing rentals and decreasing yields we expect to see an increase in the value of industrial stock, particularly for assets where older leases are reviewed to the new market level. -4 Source: Reserve Bank of New Zealand 3

4 CPI inflation projection Total returns by sector (% pa) Dec 13 Mar 14 Jun 14 Sep 14 Industrial Retail Office Total Source: JLL IPD 1 RLB crane count New Zealand Source: Reserve Bank of New Zealand CPI inflation remains low at 1% to the year ended September 214 attributed to weak global inflation, low import price inflation, a decrease in oil and food prices and the strong NZD. Construction cost inflation by region AUCKLAND March September HAMILTON March 214 September TAURANGA March September Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Auckland Canterbury Rest of New Zealand Source: Reserve Bank of New Zealand JLL Tractor index: New tractor registrations by year 35 QUEENSTOWN March September WELLINGTON March September CHRISTCHURCH March September Source: JLL Research NZ JLL has researched the number of new tractor registrations since 25. The last five years show strong year on year growth in registration numbers indicating significant capital expenditure by farmers. This is particularly pertinent in relation to the Christchurch industrial market which is heavily involved in the transport and processing of agricultural products as well as the production of farm related equipment and machinery. DUNEDIN March 214 September Source: Rider Levett Bucknall RLB gauge current strength of the construction sector in New Zealand by way of conducting a biannual crane count. 4

5 Natural disaster The catalyst for growth and change A look at the flow on effects of the Christchurch earthquakes on the industrial sector. Initial impacts east to west Drift Due to the effects of the Canterbury Earthquakes, significant growth and change has been triggered in the industrial sector. Initially a large number of industrial premises (particularly on the eastern side of town) faced extended closure and for many, eventual demolition. This resulted in a significant decrease in the amount of available space and was a particularly uncertain time in the market. Demolition of industrial premises and relocation of tenants put pressure on existing space in the months immediately following the earthquakes. It was over this period that a substantial rise in rental levels was observed as pent up demand outstripped the supply of available stock, particularly to quality premises this being prior to the start of the bulk of industrial rebuilding/new development. This period also saw a noticeable east to west drift and as tenants moved from uncertain land conditions, insurance issues and damaged buildings to the more stable western suburbs, this is now also where a significant proportion of the worker population has migrated. The Future The industrial hub of the South Island JLL anticipates the consolidation of Christchurch as the heart of industrial operations in the South Island and Gateway for the storage distribution and export of goods imported and exported from the South Island by rail, road, sea and air. We believe many regional businesses will find themselves on expensive land with obsolete equipment. We anticipate these types of businesses shutting down South Island wide operations and building one big box in Christchurch and putting all freight on rail and road which are easily accessible from the various industrial precincts within the City. Setting the scene The changing shape of Christchurch s industrial precincts Wool meat and wheat (Amended from CCC) The majority of Christchurch s industrial localities were originally farmland on the outskirts of the City. Initially, industry in the area focussed on the processing of primary products including wool, meat, timber and wheat with the built environment comprising timber mills, tanneries, wool scours and flour mills. These premises were centred around todays CBD and Sydenham areas. Biscuits, beer, cold meat and tractors parts Given the scale of farming surrounding Christchurch, the manufacturing of farm related implements developed in the city. There was also growth in the manufacturing of clothing, footwear, foodstuffs and beverages. A number of freezing works were developed and expanded over the period facilitating the transport of chilled meat to export markets. Most have now closed and are being developed into industrial subdivisions. The outcome substantial new development Lack of the supply, persistent demand, low vacancies and increasing rentals along with a swathe of industrial land on the periphery of Christchurch has triggered substantial development over the past two years with a number of major tenants relocating to new premises. With over 6 hectares of industrial land released we are now, for the first time since the earthquakes, seeing the market swing towards the tenant. Tenants have a range of options at the various industrial parks around the city and 214 saw a number of spec built industrial units to cater to small and medium size tenants, a market which was particularly tight until this point in time. 5

6 Deregulation, tech and the rail corridor Deregulation of the economy in the 198 s put paid to a number of major manufacturers with New Zealand open to imports from offshore. This led to a change in the industrial landscape with the emergence of the electronic industry, the prime example being Tait Electronics in Wairakei Road which subsequently sparked the development of the surrounding office/technology park. It was around this time that development increased along the rail corridor from Addington down Blenheim Road through into Middleton, Sockburn, and Hornby. From one Port to another The map below outlines the shape of the Christchurch Industrial Precincts as they stand today. Development has organically centred and grown around the rail corridor extending from Woolston through to Hornby and around the key arterial routes of the southern and northern motorways. The majority of industrial uses are now centred in three key precincts being; west of Lincoln Road, south of the CBD and east of Fitzgerald Avenue. There are also pockets of industrial uses to the North of the city. The 198 s also saw the development of the produce park at Islington which has seen the consolidation of a number of larger scale agriculture, horticulture and food based business into one locale. Christchurch industrial precincts Source: JLL Research NZ 6

7 Christchurch industrial precincts WEST The Heartland EAST The Hinterland SOUTH The Old school NORTH The New school Minimal earthquake damage Modern premises with a focus on large scale warehousing, distribution centres, logistics/ freight, cold storage and manufacturing Large tracts of greenfield industrial land The ex-heartland significant earthquake damage Added cost of sub-surface construction/engineering due to generally inferior soil conditions Typified by larger dated stock with heavy uses in Woolston and Bromley Mainly encompasses the industry locality of Sydenham as well as South City and Addington Moderate earthquake damage Typified by medium stud workshops constructed from the 196 s through 198 s One of the later precincts to be developed being further from the CBD Comprises pockets of industrial uses in Papanui, Belfast and Burnside Leasehold development occurring around the Airport Location of a majority of new builds post-quake Highest rentals & lowest yields Excellent transportation linkages to the new and planned motorway developments Mainly zoned B5 catering for heavier industrial uses Smaller industrial workshops through Waltham and Phillipstown Affordable rental levels in existing stock Positives - good access to the Port, Portlink development, brownfield developments such as the Tannery Good buying in this locality, existing older insured buildings more affordable than new A focus around the industrial service industry auto related services, workshops and light manufacturing with some smaller scale warehousing Typical lot size is smaller than other precincts with site cover typically up to 1% with limited on-site parking Mainly zoned B3, more flexible, strong yields Redevelopment of the Belfast Freezing works into an industrial park Good access to the Airport and northern road and rail linkages Mainly older dated stock in Belfast and Papanui with some more recent unit developments in Burnside along with the Technology park. Rolleston The Izone Effect Land values in the range of $1- $15/sqm, strong land sales activity through 213 and sales $15 million purchase by Port of Tauranga for 15 hectares of land ($1/sqm) for an inland port development (shares in Timaru Port) Significant existing tenants include The Warehouse distribution centre, Westland Dairy Co-Op and PGG Wrightson seeds Close proximity to workforce in Rolleston which has expanded exponentially over the last 1 years Alternative to more expensive options in Christchurch particularly for businesses servicing the rural sector or distributing South Island wide Supply side The key players, new developments, regulation Industrial development land Land Supply. It s ample. The land supply situation in Christchurch at present is characterized by a few key developers with significant blocks, slowly releasing serviced industrial land to Quick Facts Courtesy of the CCC 141 hectares rezoned to industrial from ,17 hectares of industrial zoned land city wide the market as required. The amount of industrial land available around Christchurch signifies at least 25 years of supply based on the average historical take up. The bulk of this supply is in the form of greenfield developments on the south western periphery of Christchurch along with additional pockets to the eastern and northern parts of the city. Source: JLL Research and Consulting 7

8 Market Cross Section JLL has a database detailing the industrial stock in Christchurch and Rolleston. 3,, Christchurch Industrial Floor Area by Location Building Consent Action The figures below detail the number of building consents issued, the value of these consents and the total floor area consented by sector in the Canterbury region to the end of Q Floor area consented 14, 2,5, 12, 2,, 1, 8, 1,5, 6, 1,, 4, 5, 2, Rolleston CBD South North East West Source: Property Guru We estimate current space in Christchurch to total 4,725,sqm backed up by a further 17,sqm in Rolleston predominantly in the Izone Industrial Park. The bulk of stock is located in the West and East precincts focused around the major nodes of Hornby, Wigram, Bromley and Woolston. The breakdown of use in Christchurch is defined by predominantly warehousing for the storage and distribution of goods throughout the South Island. Building Consent activity was strong throughout 214. Emphasis still remains around the commercial sector in particular the value of office consents being issued. Storage and industrial building consents saw growth through all three measures throughout the first three quarters of 214. With a slight drop in floor area consented and constant numbers in Q4. Consents by value 16,, Retail Office Storage & Industrial Source: Statistics New Zealand 2,5, Christchurch Industrial Stock by Use 14,, 12,, 2,, 1,, 8,, 1,5, 6,, 4,, 1,, 2,, 5, Mixed Use Service Industries Heavy Industrial Light Manufacturing Warehousing Source: Property Guru Manufacturing also comprises a large segment of the market reinforcing Christchurch s position as the manufacturing centre of the South and the second largest manufacturing industry in New Zealand after Auckland. Heavy industrial uses also feature prominently and are generally concerned with the storage of dangerous or noxious materials and large scale manufacturing. Consent numbers Retail Office Storage & Industrial Source: Statistics New Zealand Retail Office Storage & Industrial Source: Statistics New Zealand 8

9 Key Players and New Development The industrial heavyweights The key players over $15 million in value and 1,sqm in floor area. Company Location Floor Area Foodstuffs Hickory Place, Islington 28,94sqm Countdown Shands Road, Hornby South 29,sqm General Cable Main South Road, Sockburn 29,337sqm Tegel Carmen Road, Hei Hei 16,697sqm Goodman Fielder Blenheim Road, Upper Riccarton 12,359sqm Meadow Mushrooms Wilmers Road, South Hornby 13,537sqm Mainfreight McAlpine Street, Wigram 14,981sqm In the pipeline A sample of planned industrial developments around Christchurch. Type Location Floor Area 17 Industrial/ Residential Units Warehouse and Office Marshall Street, Woolston Sir James Wattie Drive, Hornby South 4,1sqm 1,8sqm Warehouse Braeburn Drive, Hornby 2,4sqm 3 Warehouse/Office Buildings William Lewis Drive, Sockburn 4,196sqm 8 Industrial Units Avenger Crescent, Wigram 2,33sqm 12 Industrial Units William Lewis Drive, Sockburn 4,sqm 5 Industrial Units Hickory Place, Hornby South 4,sqm The newcomers Significant new industrial developments post-quake. Company Location Floor Area Allied Pickfords, Mico Metals, Smith and Smith Metals and Bradmans Sleepyhead McTeigue Road, Hornby South Sir James Wattie Drive, Hornby South 7,sqm 1,583sqm Placemakers Shands Road, Hornby 2,685sqm Kathmandu Kennaway Road, Woolston 5,2sqm Elastomer Products Limited Kennaway Road, Woolston 5,64sqm DHL Halswell Junction Road, Hornby 6,87sqm Move Logistics Halswell Junction Road, Hornby 5,8sqm Map outlay of key players and new development Source: JLL Research NZ 9

10 Lyttelton Port The Container Gateway to the South New Zealand s third largest port Current annual containers 37,. Goal 75, by 224 and 1,5, by 244 Key competitors Auckland and Tauranga, each with 9, at present. Also Ports at Dunedin and Napier Direct competition with PrimePort Timaru (half owned by Port of Tauranga) 1ha harbour reclamation to move container terminal Purchase and rezoning of a 27 hectare lot at Izone Rolleston for an Inland Port with a direct rail link to increase capacity keep additional cargo off Christchurch roads Inland port to be a truck to train container exchange point $2M+ development The port was damaged during the earthquakes and has been paid out $445 million by insurers for repair work Battle of the Food Giants The Expansion of Foodstuffs and Countdown distribution centres Both the major supermarket distribution centres in Christchurch have expanded post quake. Foodstuffs is currently completing a 25,sqm building adjoining its existing facilities at a reported cost of $45 million. This follows the closing down of their distribution centre in Papanui although the head office remains on that site. CEO Steve Anderson says; Countdown completed a $2 million construction and fit-out programme for the extension of their Hornby Distribution Centre in 212. The facility comprises 22,sqm of warehouse with 7,sqm of canopy. The DC is reported to service more than 68 supermarkets across the South Island. Managing Director Dave Chambers says: is now the distribution hub of the South Island due The Christchurch Regional Distribution Centre will improve Hornby to its proximity to state highways north and south, the new the operational effectiveness of our supply chain, and represents Southern Motorway Project, plus the Port of Lyttleton. We want to future proof our entire distribution system for the next 25years and this will allow us to do so.. a significant investment in the Canterbury region. We are looking at the long term needs of our business, and the CRDC will help serve our customers and suppliers more efficiently. 1

11 Planning and regulation The red tape The Land Use Recovery Plan (LURP) The Land Use Recovery Plan was published in 213 and provides a framework for the Christchurch rebuild and future development within the region identifying a number of priority areas. Demand side - Rents, vacancy and deals Christchurch Rental Ranges by Precinct West Warehouse Office $/Week New Build $11-$125 $225-$285 Limited Prime $9-$11 $2-$24 Standard Secondary $7-$1 $15-$2 Ample $12-$2 $1-$12 $8-$1 South/ Central Warehouse Office $/Week New Build $11-$13 $24-$3 Limited Prime $9-$11 $17-$24 Standard Secondary $7-$1 $13-$17 Ample $15-$2 $12-$15 $1-$12 Source: licenses/by/3./nz/legalcode The proposed replacement district plan What the plan aims to achieve: Maintain a sufficient supply of industrial zoned land to meet demand until 228 Avoid the need for industrial activities to locate to nonindustrial areas Encourage redevelopment of existing industrial zones for industrial activities Limit office develop to an ancillary activity to industrial uses. Avoid the development of new office parks The new industrial zones: Currently there are 1 industrial zones ranging from B3 through to B8, the proposed plan consolidates these into three main zones as follows Industrial General Caters for industrial activities that operate in close proximity to more sensitive zones, Aims to limit effects of noise, odour and traffic Industrial Heavy Zone Provides for industrial activities that generate significant effects including high levels of noise, odour and heavy traffic Industrial Park Zone Provides for industrial activities in the high technology sector and other industrial in a high amenity environment East Warehouse Office $/Week New Build $11-$125 $21-$24 Limited Prime $7-$95 $15-$21 Standard Secondary $55-$1 $1-$13 Ample Tenant demand Rents $1-$12 $8-$1 $6-$8 The 214 year saw continued rental growth in the industrial market with sustained demand for well-located modern premises with a favourable NBS %. Rental growth is being driven by persistent low vacancy particularly in the south and west localities in conjunction with ever increasing build costs meaning increasingly higher rental levels are required to justify new development. JLL note a push back from tenants at the $125/sqm rate which is the benchmark for new built space. Tenants do not appear willing to stomach rental rates above this level considering the significant rise from the pre-quake benchmark of $9/sqm for new/prime space. Because of these factors JLL forecast only moderate rental growth over the 215 year as the tables begin to turn towards the tenant for the first time since the quake. 11

12 Vacancy JLL has recently conducted a vacancy survey of the major industrial precincts. As has been the trend for the past two to three years vacancy remains at a very low level across most precincts. The sub locales of Hornby/Sockburn and Middleton/Wigram within the Western precinct continue to perform strongly with the lowest vacancy rate in the city. The Middleton/Wigram sector is performing particularly well with high demand based on the desirability of the location and the quality building stock available to the market. Vacancy remains higher in the eastern precinct particularly in Bromley which has a higher prevalence of older, larger, and earthquake affected stock. Vacancy is low overall for A grade and new built premises with the vacancy for C grade space particularly low indicating an undercurrent of strong demand for more affordable premises. Some space remains in the D grade segment of the market however this is likely to be stock that requires extensive refurbishment and restoration before it can be occupied. We may see an increase in B grade vacancy over 215 as tenants move into new premises leaving larger secondary stock on the market. Vacancy by grade across each precinct Grade West South East A 2.48%.77% 3.91% B 1.82% 4.3% 12.23% C.98% 3.6% 5.55% D 2.16% 5.97% 11.6% Overall 1.91% 4.11% 7.58% Vacancy by precinct 7.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Vacancy by grade East South West Total Source: JLL Research NZ Investor demand Transactions and yields Traditionally Christchurch has experienced low to moderate sales activity in the recent past with the combined effects of the GFC followed by the initial uncertainty in the aftermath of the Canterbury Earthquakes. An increase in sales activity transpired into 212 and 213 particularly in the owner occupier market and sub $1 million markets which are typified by industrial units, workshops and smaller scale warehouses. We are now starting to see activity in the $5 million plus market which we forecast to continue as investor confidence strengthens and new building activity brings more assets of this size to the market which has a more attractive price point and new build sector than Auckland. West Yield Range New Build 6.25% % Prime 7.% % Secondary 8.% - 9.5% South/Central Yield Range New Build 6.5% % Prime 6.75% - 8.% 214 was a ground breaking year in terms of transactions of this size and scale in the industrial market which further solidifies the viability of Christchurch as a home for substantial capital from local, national and foreign investors. Secondary 7.75% % East Yield Range Investor demand in Christchurch New Build 7.% % focuses around a number of specific factors. These factors Prime 7.5% - 9.% include a preference for buildings Secondary 9.% - 11.% with high NBS % at least 67% of code with higher demand for modern and post-quake properties that are at 1% of, or in excess of the new code. Well located properties in the south-west and north-west industrial localities are commanding a premium due to superior industrial infrastructure, more favourable tenant/lease profiles, a proliferation of new builds, superior ground conditions and a focus on harbouring industrial development in the area into the future. Strong demand in the new build and prime property sectors has crossed over into the secondary market decreasing vacancies, increasing rentals which in turn have stimulated growth in capital values. Secondary quality buildings in prime locations are finding particular favour in the market as they are able to accommodate tenants at a more affordable rental level but still provide the locational advantages of the area. 6.% 5.% 4.% 3.% 2.% 1.%.% A B C D Source: JLL Research NZ 12

13 Significant industrial sales Address 69 Shands Road Address 71 Shands Road Address 85 Shands Road Location Glassworks Industry Park Location Glassworks Industry Park Location Hornby Building Name Placemakers Building Name Big Chill Building Name Carter Holt Harvey Packaging Floor Area 285 sqm Floor Area 1855 sqm Floor Area sqm Land Area 9143 sqm Land Area 8314 sqm Land Area 4351 sqm Sale Date October 214 Sale Date October 214 Sale Date September 214 Sale Price $7,2, Sale Price $7,9, Sale Price $16,37, Rental $419,361 Rental $5,439 Rental $1,42, Initial Yield 6.5% Initial Yield 7.15% Initial Yield 7.15% Sale Price/sqm $2,526 Sale Price/sqm $3,822 Sale Price/sqm $733 Lease Term 9 years Lease Term 15 years Lease Term 15 years WALE 7.56 years WALE WALE 8. years Vendor Goodman Nominee Vendor Goodman Nominee Vendor Goodman Nominee Comment Specialist building outlet centre completed in 213 to 1% NBS. Comment Purpose built refrigerated distribution facility completed in 213 and extended in 213. Comment Substantial industrial complex originally constructed in the 197's with extensions undertaken until 1996 and a freestanding store developed in 213. There are approximately 2 improved properties in Christchurch with a current rating valuation over $5 million dollars making up approximately 3.5% of total improved properties. The limited supply of high value stock further reinforces the significance of the multiple transactions within this range of late. The breakdown in value of Christchurch s improved industrial stock The total improved stock stands at approximately 5,35 properties. Less than $1M $1M - $5M $5M - $1M $1M - $2M $2M + Source: JLL Research NZ 13

14 The Fishhooks & Roadblocks Fire safety regulation. Added cost of compliance. Escalation of build costs. Higher rentals required for development to be feasible. Regulation and planning. Development controls and processing delays pushing out timelines on new development. Lack of off-shore/institutional investment in the Christchurch market Strong New Zealand Dollar. Potential clashes with residential development south-west Christchurch will be the industrial hub. How will this interact with residential development which is expanding rapidly in the same location? Conclusion In conclusion, the Christchurch industrial market is expected to perform strongly over the next 12 months as development and remediation work continues to take place. Favourable underlying local and national economic conditions will continue to drive the market into 215. Rental levels will stabilise through the year as further new supply comes to the market. The significant amount of quality new built stock with favourable lease structures will continue to push capital growth in the region. The future of the sector will be focussed around the western precinct which houses the large tracts of greenfield land ready for development. The area has the best access to Christchurch s key transport linkages and arterial industrial routes and the existing buildings are the best in the city with a prevalence of new and modern premises with higher stud heights and better access. Post-quake residential and commercial development has also focused on the south-west of the city with a number of new residential subdivisions particularly in the Halswell and Wigram localities. The Hornby area has seen large commercial development including the expansion of the Hub Hornby and a swathe of bulk retailing premises confirming south-west Christchurch as a growing urban and industrial hub within the City. There are however still benefits of being located in the eastern industrial locations particularly for port related businesses. The area has more affordable rental levels and buildings with limited damage and high NBS will still find favour in the market. On a wider South Island scale JLL sees Christchurch consolidating its position as the hub of industrial operations on the mainland. We anticipate the potential stagnation of rents, yields and development in the regions as more businesses centralise their industrial operations into the Christchurch market due to the favourable underlying dynamics affecting the location. A key to continued performance of the industrial sector will relate to its ability to attract non-local and off shore investment. With a range of new buildings and higher yields we believe we will see increased outside interest in the Christchurch industrial market in the coming year. 14

15 JLL Auckland Level 16. PwC Tower 188 Quay Street PO Box 165 Auckland, New Zealand Ph: Fax: JLL Wellington Level 1. Lumley House 3-11 Hunter Street PO Box Wellington, New Zealand Ph: Fax: JLL Christchurch 1 Papanui Road Merivale PO Box 6466 Christchurch 814 Ph: Fax: Justin Kean Director Research and Consulting Auckland justin.kean@ap.jll.com Tom Barclay Valuer, Valuation & Advisory Christchurch tom.barclay@ap.jll.com COPYRIGHT JLL 215 All rights reserved. No part of this publication may be published without prior written permission from JLL. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor. JLL Licenced Under REAA 28.