Industrial Property Update - June 2021
Posted on 18 June 2021 by Rodney King
“The industrial sector has proven to be quite resilient over the past 12 months. The sector has been going through a significant transformation driven by the requirements of occupiers whilst attracting significant investment.”
May 2021 was the second-highest month on record for both ‘Buy’ and ‘Lease’ searches on realcommercial.com.au, with Victoria, South Australia and Tasmania the standout performers. Buyer search volumes hit record heights in Victoria which recorded an 8% month-on-month growth. In Victoria, Queensland and Tasmania views per listings were more than double what they were in May last year despite the decrease in the number of active listings this month.
Warehouses are in high demand nationally, with the category recording the second largest year-on-year growth (98%) and a month-on-month increase of 9%. Victoria drove the demand in this category, with year-on-year growth of 129%.
Pressure is on the supply chains, as retailers seek to deliver merchandise to stores and more importantly direct to consumers homes. Consumer expectations have put increased emphasis on speed of delivery with expectations of faster deliveries. Occupiers are increasingly valuing proximity to the consumer to save time and cost. The net result is an increasing focus on inner city with immediate access to arterial roads. Melbourne has the greatest amount of industrial and logistics floorspace of any Australian city. Traditionally Melbourne’s industrial floorspace was dominated by the manufacturing sector. However, this has been slowly declining over the past decade. In recent times, Melbourne’s growing port has helped to drive strong demand in the transport and warehousing sector, while food production and high-tech manufacturing has seen strong growth and led to a small resurgence in the manufacturing sector.
The bulk of Melbourne’s industrial space is located in the South East followed by the West. The vast majority of stock in Melbourne’s industrial market has a floorspace with 1,000 square metres or less and accounts for approximately 74% of the number of Melbourne industrial properties. As a result of these structural changes supporting strong demand for industrial real estate, industrial remains the strongest performing real estate asset class in Australia.
“We have seen strong demand for small to mid-size warehouses across the South East of Melbourne.”
The Australian industrial and logistics market has broken a 24-year record in the first quarter of this year with gross take-up of industrial space tipping over a million square metres. Face and effective rents are increasing with Melbourne’s south east at 2.7%. In the industrial land market, growth in land values continue to be supported by strong levels of underlying demand and a scarcity of developable industrial land. Strong tenant and owner occupier demand is greater than the available supply, leading to upward pressure on land values, as developers seek opportunities to cater to the demand.
Meanwhile, increased levels of development and rezoning in many suburbs, have led to a significant reduction in developable industrial land across Melbourne. Reflecting this declining state of developable land, land values in Melbourne have experienced significant year on year growth of more than 20% over the past two years.
Based on current industrial stock levels, projections of Australia’s population to reach 27 million by 2023 suggest a further eight million square metres of industrial space will be required to meet the increased population with 1.3 million square metres currently under construction will likely fuel competition for both sites and existing assets.
“Earlier this year Aston commercial successfully sold out a Mordialloc boutique development of 8 office warehouses in 6 weeks. Whilst at the end of March we auctioned four warehouses together in Oakleigh South that sold on a yield of 4.8%. We have seen yields compress with strong demand from buyers who traditionally looked for retail assets.”
Director of Agency