This article is from the Australian Property Journal archive
AUSTRALIA’S national industrial and logistics market remains the tightest in the world, despite the first upwards movement in the vacancy rate in years – and more are on the way.
CBRE’s Industrial and Logistics Vacancy report showed a lift in vacancy rates for all major markets across Australia in the second half of 2023, from 0.6% to 1.1%.
Sydney rose from 0.2% to 0.5%, but still claims the lowest vacancy rate of any city in the world.
“We are now beginning to see upward movement in the vacancy rate across all major markets. Although the movements are not significant and remain at relatively low levels, we expect this increase to continue throughout 2024 as demand normalises and greater supply enters most markets,” said Sass J-Baleh, CBRE’s head of industrial and logistics research.
Net absorption continues to be dominated by occupier expansion, reaching 1.1 million sqm over the second half. This was concentrated in the Sydney and Melbourne markets as new floorspace was readily absorbed; a combined total of 1.3 million sqm of new supply has been added to Sydney and Melbourne in the second half.
CBRE’s industrial and logistics regional director, Cameron Grier said, occupiers will “finally start having some choice in 2024”, although most are tipped to be taking the flight to quality journey.
“With this increased supply, it’s important to note most markets will remain well below historical vacancy levels.”
Sydney vacancies to lift further
Vacancy levels continue to be at an all-time low in Sydney due to the lack of available space. The vacancy rise in the second half was mainly owing to higher sub-lease activity – representing 70% of the total vacant space in the Sydney market.
CBRE’s Western Sydney managing director, Michael O’Neill said there will be an increasing number of vacancies coming online in the first half of next year and vacancies are expected to exceed 1% by mid-2024.
“There will be leases that reflect rental growth in early Q1 but more broadly rents will stabilise with upward pressure on incentives likely. Most of the new stock coming online in Q1 and Q2 will be larger format space in the outer west but there will be a combination of speculative, existing, and sublease vacancy in all markets.
“Essentially the market will begin to normalise after two years of extraordinary growth.”
Land supply continues to be impacted in parts of the Mamre Road and Aldington Precinct which will alleviate some of the downward pressure caused by the inflated cost of capital and construction.
While capital values continue to be negatively affected by yields softening, moderating rental growth and historically low vacancy will continue to preserve value.”
Melbourne’s vacancy rate has increased slightly to 1.6%, while the north and southeast/east vacancy rates both remained stable over the second half of the year at 0.7% and 1.4%, respectively.
CBRE’s Tom Murphy said the major movement in the vacancy rate over H2 was recorded in the west precinct, more than doubling from 1.4% to 2.9% with several sub-lease spaces recorded in the precinct– representing around 20% of total space available in this market.
The Brisbane market has recorded the largest movement in the vacancy rate between H1 2023 and H2 2023, increasing to an average of 1.4% as net absorption fell by more than 50%.
The south precinct, which had the lowest vacancy rate in Brisbane over H1 2023 at 0.3%, now has the highest vacancy rate of 2.7%. Most of the vacant space was in secondary-grade stock. Vacancies in the M1 Corridor rose from 0.4% to 2.0% in H2, while all other precincts in Brisbane remain relatively tight.
CBRE’s Peter Turnbull said pricing remains high, which is continuing to slow the rate of speculative stock commencing, while time some sub-lease space coming to market, as customers with 3PL providers begin to reduce their stockpiles and no longer require the space they leased in the pandemic period.
In Adelaide, the largest decline in vacancy was recorded in the west, from 4.5% to 1.8% in H2.
Other precincts experienced an uptick in the vacancy rate, including the north west going up 120 basis points, the outer north up 110 basis points and the north up 20 basis points.
Jordan Kies of CBRE said several sale transactions have occurred in the final quarter, demonstrating that appetite for land and value-add assets continue to drive activity in the South Australian market.
“Vacancy remains tight, with the limited speculative development stock under construction being absorbed at a healthy rate. The gross occupancy cost of tenants is being monitored with notable increases in market rents, wages, fuel and transport, electricity, gas, and quite substantial recent increases in statutory outgoings which are generally passed on and recovered from the tenant. Whilst we’re yet to see this, we expect some sub-leasing activity to start to creep into the South Australia market.”
