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Warehouse vacancy drops sharply on the east coast

March 12, 2018

Retail is driving the demand for warehouse space. Photo: Gabriele Charotte

The amount of vacant industrial property space has fallen 26 per cent in the east coast markets over the last year as retailers demand more space in warehouses and logistics facilities.

The total industrial vacancy across the major markets of Sydney, Melbourne and Brisbane now sits at 1.7 million square metres.

That is a sharp drop of 580,660sq m over the past 12 months, according to Knight Frank figures. Total vacancy is 26 per cent down.

In the last quarter vacancy ticked up by 1.6 per cent, but not enough to outweigh the broader squeeze in the sector over the full year.

warehouse-vacancy-chart

The Sydney market remains close to its cyclical low of mid-2017, with just 384,000sq m of space available.

In Melbourne and Brisbane vacancy stabilised over the past quarter at levels just above the four-year lows of October 2017, at 799,000sq m and 515,000sq m respectively.

The annual take-up for vacant industrial space was more than 1.88 million sq m in 2017; well above the annual average of 1.46 million sq m.

Robust demand

“The steep drop in vacancy over the past year reflects robust demand for space from retail-driven logistics and third-party logistics providers,” said Knight Frank’s head of industrial for Australia, Tim Armstrong.

“Tenants continue to seek to consolidate and improve the quality of their accommodation, with 66 per cent of take-up for the quarter in prime accommodation.”

Melbourne experienced the strongest take-up over the past year, up by 27 per cent to 812,000sq m. The western precinct was the most dominant for industrial activity.

Brisbane had the largest take-up increase of 51 per cent to 488,000sq m for 2017. That surge was achieved even though last quarter slowed as decisions were deferred due to the November state election.

In Sydney, activity is limited by the amount of space available. The 2017 take-up was 23 per cent below 2016 levels.

“Continued strong demand for modern facilities in these major industrial markets reflects structural change in the sources and quantum of demand, with supply not keeping up at present,” said research head Ben Burston.

There level of speculative space – projects without pre-commitment – under construction is below average across all markets except Melbourne.

“We can expect conditions to remain tight over the next 12 months. Sydney in particular needs to see more speculative supply to redress the current imbalance,” Mr Burston said

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