This article is from the Australian Property Journal archive
AUSTRALIA’S industrial market boom is coming to an end as vacancies stabilise and rental growth slows across the three largest core markets. At the same time, institutional investors are leveraging foreign capital to acquire properties valued over $50 million.
According to Savills’ latest Industrial Shed Briefing for November, Sydney West, Melbourne West and Brisbane Southside have seen rental growth stall as the cycle of record growth winds up and the market rebalances.
“Signs of deceleration have been evident throughout 2024, with both rental growth and speculative construction rates gradually declining,” added Katy Dean, national head of research at Savills.
“Vacancy rates have also increased, marking a significant shift in supply and demand dynamics following record low levels in 2023.”
The third quarter displayed signs of stabilisation after face rental growth halted in some markets and contracted in others.
While the three largest core markets remained unchanged over the period, Adelaide North-West recorded 2.9% of growth and Perth Core saw a 3.2% increase in Q3.
On average, prime net face rents are still sitting around 50% higher than the same period in 2021, and over 60% higher than in the pre-COVID 2019.
“In Sydney’s West, net face rents adjusted downwards in Q2, and average prime incentives have risen from 7.5% in 2023 to 17.5% in 2024, resulting in a nearly 10% decline in net effective rents over the past year,” added Dean.
Transactional activity has remained strong over the period, with anticipated 2025 interest rate cuts only consolidating investor sentiment.
“There has been a notable uptick in the leasing of spec space, representing 14% of deal volumes and nearly double what we have seen in any quarter over the last year,” added Dean.
“It reflects increased demand for higher quality buildings, and a potential rebound from retailers and distributors ahead of the peak holiday shopping season.”
In Q3, industrial investments over $10 million hit around $2.5 billion, reflecting the ongoing confidence in the asset type but still down 27% on Q2.
While year to date investment volumes are at $8.8 billion or up 36% on last year’s $6.5 billion.
With Q3 also seeing the average individual deal size expand by around 6% quarter-on-quarter and 30% compared to the same period last year.
“This significant growth suggests that scale investors are re-engaging with industrial. This is supported by a noticeable recovery in buy-side activity, particularly from institutional investors either directly purchasing or leveraging foreign capital to acquire properties valued at $50 million or more,” said Dean.
Japanese giant Mitsubishi Estate Asia (MEA) entered the local market with plans to develop a $175 million industrial estate in Melbourne’s south-east.
Other major transactions over the period including Aware Super and Barings’ acquisition of Austrak Business Park in Melbourne for around $600 million and PGIM Real Estate and Elanor Investors joint purchase of the 19-hectare Woolworths Distribution Centre site in Victoria for around $200 million.
“The rebound in investment volumes over the past two quarters, along with substantial capital waiting on the sidelines, reflects strong confidence in the sector’s future investment performance,” said Michael Wall, national head of industrial and logistics at Savills.
“Investors are actively repositioning for returns, driven by favourable demographics and the strong demand profile in industrial and logistics, both of which are encouraging increased investment in the sector.”
The quarter also saw 842,500 sqm leased, up around 10% from the last quarter’s circa 767,875sqm.
The East Coast vacancy rate is also stabilising after three quarters of sustained growth, hitting 3.41% in October up marginally from 3.36% in July.
In Sydney, the vacancy rate was up from 3.62% in July to 3.75% in October, with Melbourne up from 3.07% to 3.09% and Brisbane held stable at 3.38%.
