Melbourne’s industrial market is experiencing record levels of demand from occupiers and investors but leasing demand is not evenly spread across the precincts, according to Colliers International.
Industrial director Alysia Reilly said the western industrial market was traditionally dominant given its scale, the availability of land and capacity for “big box”, or larger, development footprints.
“The current level of inquiry in Melbourne’s industrial hot spots is greater than we have seen in a long time. In the western and northern industrial markets alone, there are pre-lease briefs exceeding 500,000 square metres which is around three times the long-term average,” she said.
“Rental growth is not consistent across the core industrial markets, as the city fringe is impacted by rezoning and supply restrictions driving strong growth, whereas effective rents in the west haven’t grown as a result of strong competition among those developers holding land at a lower historical cost, allowing them to complete pre-lease deals with incentive levels of plus 30 per cent.
“We do not expect this trend to continue, as new entrants to the western market, such as GPT and ISPT, have purchased land at current market rates which will require them to achieve higher rents to support their project feasibilities.”
Strong population growth, land availability, infrastructure upgrades and residential construction were all factors influencing occupier demand within the industrial sector, according to JLL Victoria head of industrial Matt Ellis.
“The changing characteristics of occupiers has translated into strong absorption and overall growth in Melbourne’s industrial market over the last decade,” he said.
“In 2018, the north and western industrial precincts recorded the strongest increase in face rental growth year-on-year in more than 10 years. The transport and logistics sector performed strongly with 832,420 square metres [62 per cent] of the total 1,356,139-square-metre take-up for the sector in the last year recorded within the western precinct.”
Mr Ellis said fuelled by population growth, the industrial west had outperformed other precincts in respect to rental growth, experiencing a 4.8 per cent, year-on-year prime growth, and 10.4 per cent in secondary markets.
“The distance of the distribution facility to the populations they serve and/or proximity to the Port of Melbourne has become increasingly important. The rise of e-commerce and logistics efficiencies is forcing companies to consider their supply chain and industrial warehouse footprint,” he said.
“The industrial west will continue to benefit from the proximity to the CBD and access to major transport linkages.”
Lemon Baxter commercial/industrial sales and leasing director Ben Hackworthy said a lack of supply due to residential and commercial development was forcing requirements over 3000 square metres away from the city fringe.
“The smaller, existing strata units are still in great demand for sale or lease and prices have increased 20 per cent and rents by 12 per cent over the past few years,” he said.
Savills industrial and business services director Kosta Filinis said net face rents in Melbourne’s south east and east have increased, while incentives have dropped from 22.5 per cent to 15 per cent.
“Demand levels remain above long-term averages, and when paired with the low supply we see incentives dropping further from their current levels,” he said.
“In the past 12 months, about 250,000 square metres of industrial space was leased in Melbourne’s south east.
“When we look at national industrial rental rates, Victoria is still the most competitive across the eastern seaboard.”
Knight Frank Victoria head of industrial Gab Pascuzzi said as more and more people shopped online, the need for the e-commerce sector to occupy more industrial space had increased.
“Simultaneously, customers’ rising expectations for faster delivery times and a wider range of products is prompting demand for more efficient warehousing systems,” he said.
“Demand for industrial space is also being boosted by the food industry, which itself is being driven by Victoria’s strong population growth.
“Over the past year, a number of food production and processing companies consolidated into larger, more automated industrial facilities. Woolworths and Coles are following suit, implementing supply chain automation into their warehouses.”
LJ Hooker commercial managing director Mathew Tiller said demand for industrial space was coming from a variety of operators.
“Tenants servicing the online retail market will be seeking out top quality efficiencies including scope for automated facilities on the doorsteps of Eastlink, the Western Ring Road, Princes Freeway and other arterials,” he said.
According to Colliers International, a key trend likely to continue throughout 2019 and beyond was the demand for big sheds, including warehouses larger than 100,000 square metres.
“The latest project to get the green light was a 110,000-square-metre warehouse being built for Kaufland at Merryfield, in Melbourne’s north, and we know of another requirement in the market for a 100,000-square-metre-plus building at the moment,” Ms Reilly said.
“This is being driven by a number of different factors including the evolution of the supply chain, changing retail conditions, the rise of automation and the availability of land in Melbourne’s big box industrial market.”
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