This article is from the Australian Property Journal archive
AN increasingly tight market has seen national prime existing industrial rents grow by 24.8%, the strongest annual growth seen in 34 years.
According to JLL, the growth recorded over the last 12 months in this market is the greatest recorded in the more than three decades the group has been tracking.
Over the March quarter alone there was a 4.6% increase in rents, picking up pace again from the more moderate 2.9% increase in the last quarter of 2022.
“We anticipate that rental growth will remain strong this year even as economic challenges create business caution. The supply demand imbalance created in 2021 is taking time to reset. The development pipeline is building,” said Peter Blade, head of industrial and logistics at JLL Australia.
The first quarter of this year saw the east coast industrial markets performing strongly in particular, with annual rental ranging from 20% to 40% in key markets.
Amidst this growth, institutional developers are speculatively building new product in an effort to capitalise on higher rents at time of completion and minimise risk in the construction phase.
“We are tracking 46 (out of 82) under construction projects expected to deliver 730,000 sqm of space to the market without any level of pre-commitment,” said Annabel McFarlane, head of strategic research at JLL Australia.
“Strategies to build speculatively, without securing a tenant first, target the Eastern Seaboard states with 42 out of 46 projects in Sydney, Melbourne or Brisbane.”
For Sydney, the inner west market saw the greatest net face rental growth for the March quarter, up 8.7% for prime assets and 9.7% for secondary assets.
All of Sydney’s industrial precincts have seen prime existing rental growth over the last 12 months ranging from 22% in inner west to 40% in outer central west, excluding Sydney’s north which saw 5.1% annual growth.
A recent report from Colliers also found that Western Sydney has just 2.7 years’ worth of developable industrial land supply remaining, with only 70 hectares, or 4%, able to support the completion of assets over the coming 12 months.
In Melbourne space remained limited, driving quarterly rental growth of 9.7% for prime assets and 12.8% for secondary assets in the west. While Melbourne’s south east market saw quarterly growth of 6.1% for prime and 11.4% for secondary.
With both the west and south east precincts in Melbourne recording between 30% and 35% growth over the last 12 months on average, while incentives still range between 5% and 15%.
In Brisbane’s Trade Coast market net face rental growth was up 8.2% for prime and 7.6% for secondary over the quarter and up 21% and 23% for the year respectively.
Nationally, the first quarter was below average at 432,630sqm compared to the quarterly average of 685,100sqm over the last decade.
“The challenge for occupiers has continued into 2023. Whilst there are some instances of delayed decision making because of the current economic uncertainty, those tenants that do choose to sublease are doing so as a revenue generating exercise, tapping into the rental difference between passing rent and market rents which for some leases in some markets can be 30%, 40% or 50% higher,” added Blade.
“The market is desperate for more space so this is an easy option.”
Nationally, new completions over the first quarter were also diminished, with 256,100sqm completed compared to a decade quarterly average of 405,400sqm per annum.
Those developments that have completed in the first quarter offer limited options for tenants as they are 81% pre-committed,” concluded McFarlane.
“If we look at annual figures for new completions, the 10-year national average total is 1.62 million square metres per annum. By the end of 2023, we anticipate annual completions to total 2.3 million square metres.”
