Australia's hot housing market isn't a patch on warehouse demandThe only warehouse larger than 3000 sq m available to lease this side of Christmas in Melbourne’s south-east, is this one.

Australia's hot housing market isn't a patch on warehouse demand

An ordinary looking shed tells the story of Australia’s pandemic property market.

The nondescript tin building in Dandenong South, one of Melbourne’s industrial heartlands, is the only warehouse larger than 3000 square metres available for lease in the city’s south-east industrial zone – an area with 1207 big sheds that stretches 41 kilometres from Moorabbin to Pakenham.

The lone for-lease warehouse at 13a 43-63 Princess Highway is giving Melbourne’s south-east the distinction of having the industrial sector’s lowest vacancy rate, a miniscule 0.09 per cent, making it one of the hottest real estate markets in the country.

Incentives offered by landlords in the area to attract tenants are drying up and net effective rents jumped 15 per cent over the past six months.

“In my 10 years in real estate, it’s never been this tight,” says Colliers agent Gordon Code. “In the current conditions of a global pandemic and repeated lockdowns over an 18-month period, it is unheard of.”

Industrial markets are even outgunning the country’s hot housing sector, where property prices are running rampant and rental vacancies are also falling.

Residential vacancy nationally was at a historic low of 1.7 per cent in July, according to data firm SQM Research.

Home-bound, house-hunting and locked-down Australians are driving a generational and quantum shift in shopping behaviour – online purchasing jumped by nearly a quarter over the year to August according to Australia Post – which, in turn, has prompted an unprecedented wave of warehouse leasing by retailers and third-party logistics providers needing to handle and dispatch all the online orders.

“They’ve taken up 75 per cent of total leasing volumes for this year and last year,” Mr Code said.

The same story is being repeated nationwide.

Between last September and now, Sydney’s industrial vacancy has more than halved to 2.1 per cent. In the industrial submarket of western Sydney, vacancy hovers around 1 per cent.

At the same time, rents have shot up by 15 per cent in some sub-sectors.

“They [retailers and logistics firms] are actively seeking for warehouse space every week and because there’s not much stock, they’ll pretty much take anything they can get,” Colliers’ head of research Luke Crawford said.

Developers, like Centuria Industrial REIT, can’t build sheds fast enough to fill the gap.

“Because of the limited supply of institutional-grade industrial properties, we’ve turned to our in-house development team to deliver modern, sustainable prime-grade industrial assets,” said fund manager Jesse Curtis.

And if they can’t build, they buy. The fund purchased a portfolio of eight industrial properties late last month in Sydney, Melbourne, Brisbane and Perth for a collective $351 million, on a blended initial yield of 4.1 per cent.

Others are also boosting their holdings.

A consortium led by logistics property giant LOGOS and the country’s largest super fund, Australian Super, last week swooped on a sizeable chunk of prime industrial land at Mascot near Sydney Airport after Qantas offered it for sale.

The $802 million deal includes the sale and leaseback of Qantas’ distribution centre and 13.8 hectares of land.

Not to be outdone, diversified ASX-listed player GPT paid $682 million for 23 logistics assets and an office building on a yield of 4.3 per cent in a deal with vendor Ascot Capital.

“On the leasing side, it’s been a record year already with just one quarter to go, and likewise, on the investment side there’s been more than $12 billion traded this year,” Mr Crawford said.

“Our modelling shows that demand [for industrial space] is forecast to remain well above the long-term average over the next five years. Gross demand is expected to exceed 3.3 million square metres in 2022 before picking up in 2024 to approximately 3.8 million square metres,” he said.

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