This article is from the Australian Property Journal archive
AUSTRALIA’S east coast industrial market has normalised, with vacancies up and quarterly rental growth slowing down.
According to Knight Frank’s Australian Industrial Review Q4 2023, East Coast industrial vacancy increased by 7% over the period, as moderating tenant demand enables stock to return to more balanced levels.
Despite the boost in available space across the eastern seaboard, vacancies are still sitting 42% below the level seen two years ago and 70% below the peak recorded in 2020.
The boost to the overall vacancy rate was driven by greater secondary vacancy which was up 30% in the quarter.
While Prime vacancy decreased by 5% in Q4, with the increase in existing prime space balanced by declines in speculative availability.
Speculative space made up 29% of total vacancy, well above the average of 20% but still the share for 2.5 years.
“This level of construction is beginning to ease undersupply in the market, and we are now seeing a return towards more normal vacancy levels and rental growth amid ongoing robust tenant demand,” said James Templeton, national head of industrial logistics at Knight Frank.
“Annual take-up across the East Coast was 2.8 million square metres, only 5% below 2022, as tenant activity has somewhat defied softening sentiment on rental affordability.”
Sydney is still Australia’s tightest industrial market, with just 76,175sqm of available space, which is up significantly from the previous quarter’s 48,716sqm.
Melbourne’s vacancy was also up over the period, with an 18% lift to circa 294,00sqm of available space.
While available space in Brisbane fell by 10% (24,055sqm) to 309,073sqm over the quarter.
“Sydney was the only city to breach 1 million square metres leased, with Melbourne only slightly behind,” added Templeton.
“With more than a million square metres of pre-committed space expected to be delivered in 2024, the supply for 2024 may well be on par with last year. The drive for efficiency and to meet ESG standards will continue to support above-trend demand for new space.”
Industrial rent growth are expected to remain slower over the first half of 2024 after record levels of 25% to 50% over the last two years.
“Quarterly prime growth was sub-2% across all capital city markets in Q4 as the expected pause in rental growth eventuated,” said Jennelle Wilson, partner, research and consulting at Knight Frank.
“Annual growth remains led by Sydney at 16% year-on-year, ahead of Brisbane with 15% year-on- year and Melbourne at 8.8%. The remaining cities range from 4% – 12% annual growth.”
While Perth and Adelaide recorded the highest quarterly levels of prime rent growth for Q4, at 1.8% and 1.7% respectively.
“Rental growth is expected to remain subdued through H1 2024, before prime rents are again drawn upwards by economic rents required to trigger additional development in the second half of the year,” added Wilson.
Over 2023, industrial investment volumes were also down, falling by 26% nationally, though this was a far slighter decline that seen in other sectors. With offices down 65% and retail down 48%.
Sydney saw the most investment over the year, at $4.6 billion, followed by Melbourne at $2.4 billion and Brisbane at $973 million.
“Green shoots are emerging in the investment market due to greater financial market stability,” said Templeton.
“Many investors are viewing current conditions as providing an opportunity to bid for Sydney assets with less competition than normal; given that many institutional investors have not been acquisitive.
“Reflecting this, private investors – typically HNWIs and syndicates – were the most active buyer type in 2023, accounting for 46% of total volume, compared to a historic average of 30%, with cross-border and listed investors taking a commensurately smaller share.”
