Hunter industrial property vacancy rates fall to lowest levels in four years

The latest Raine & Horne Industrial Average Index has revelaed a fall of 1% in industrial vacancies between January and July 2017.

 

The index measures the vacancy rates of major industrial centres in Newcastle and the Lower Hunter.

 

The fall is a result of the leasing, or sale, of 30,000 square metres of industrial floor space in the past 6 months. Moreover, the average has fallen to its lowest level since January 2013, just before the collapse of the commodities market. Low industrial vacancy rates correlate to more industrial sector jobs in the region.

 

Strongest Performers

Industrial vacancies fell most significantly in Carrington, where the rate was slashed from 15.3% in January to 3.8% in July. The other big improver was Mayfield West, where industrial vacancy rates dropped from 11.2% – 3.2%.

 

The fall in Mayfield West can be attributed to the leasing of some of the suburb’s biggest buildings along with the take up of space in some of the older buildings on Tourle Street near the old Sandvik Building. These have been filled with an assortment of tenants.

 

Carrington’s big adjustment follows the redevelopment of the Old Metso Building on Darling Street.  The developer will be demolishing the building back to the old concrete slab and has been selling the small original lots that were never consolidated. The Metso redevelopment and the recently announced, Thales Marine Hub on the Old Forgacs site, have combined to reduce industrial vacancy rates in Carrington.

 

Some Challenges for Industrial Landlords in Tomago/Hexham

Large building vacancies can quickly change the vacancy profile of a suburb, and for this reason Tomago/Hexham has recorded an increase from 5.5% – 8.3% between January and July. Major vacancies include the Old Forgacs fabrication shop on the Pacific Highway at Hexham, the Old AJ Mayr site, the former Sandvik Building, and the exGoldsmiths Frames & Trusses plant. That said, it’s not all doom and gloom in Tomago/Hexham, with BlueScope leasing 5,500 square metres in the original Hyne Timber plant.

 

The past 6 months has seen the gentrification of some of the older plants closer to the city, while those located further from the Newcastle CBD are struggling to attract tenants and buyers.

A New Trend

Relatively successful businesses are beginning to invest in their own properties. The protracted low interest rate environment – the Reserve Bank left the cash rate at 1.5% in August – has generated a level of confidence within the region’s industrial sector, which is encouraging businesses to invest. What’s more, it’s cheaper to pay mortgage interest than a rent incurred for leasing a building. Industrial properties valued below $1.5 million appear more likely to be purchased than leased.

 

The bank’s reluctance to lend for speculative industrial developments is also creating a supply shortfall in the face of strong demand.

 

Low interest rates are also influencing retirees seeking more income from their portfolio to buy into industrial commercial assets. Retirees are buying leased investment properties for yields of 5.8% – 8%.

 

In summary, the latest Raine & Horne Industrial Average Index represents good news for the sector. However, vacancy rates have not varied much across the region from January, similar to the unemployment figures. In combination, steady industrial vacancy rates and employment indicate the Hunter’s economy is ticking over, rather than powering along.

 

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