This article is from the Australian Property Journal archive
MELBOURNE’S record low industrial vacancy rate is expected to remain below 2% over the next two years, which will drive double-digit growth in land values as zoned land dwindles.
According to CBRE’s new Melbourne Industrial & Logistics Land Supply report, vacancy in Melbourne’s 28.5 million sqm built industrial market is just 1.3% – the second-lowest in the country – while land values increased at a record rate of 25% over the past 12 months.
CBRE Victorian state director, industrial and logistics, James Jorgensen said a “perfect storm” of heightened occupier demand and institutional appetite for industrial and logistics property has resulted in Melbourne’s zoned land supply being exhausted far sooner than expected.
“This is placing upward pressure on occupancy costs via rental rates and outgoings, which could soon result in affordability becoming a serious concern for occupiers.
“One thing to note is that there is still plenty of rural and green wedge land on Melbourne’s periphery. There is increasing pressure on local councils and government to be proactive with planning controls and start to look at rezoning opportunities in these areas to address growing supply issues.”
Data from the Victorian Department of Environment, Land, Water and Planning shows there is 26,328 hectares of industrial zoned land with around 31% – about 8,165 hectares – defined as vacant, or undeveloped. Only 41% of the undeveloped zoned land will be available for development within the next three years.
Forecasts are particularly strong for the south-east, where just 140 hectares of industrial zoned land has been identified for development over the next three years, according to CBRE’s Pacific head of industrial and logistics research, Sass J-Baleh. This is 2% of the total undeveloped zoned land supply in Melbourne, and the strongest rent growth is tipped to occur in the region, averaging 4.6% per annum between 2022 and 2026.
Land absorption in the metropolitan region has averaged 245 hectares each year over the past decade, almost double the Sydney average, with most occurring in the west and south east.
While leasing activity has averaged 890,000 sqm over 10 years, about 2.1 million sqm of floor space is estimated to have been taken up in 2021. The west has accounted for half of this, and the south east 26%.
Enquiries show there are greater requirements for larger space in Melbourne – of between 70,000 and 100,000 sqm – compared to any other city.
“Australia’s largest container port is located in Melbourne and the market continues to benefit from strong population growth, a relatively efficient infrastructure network, and the city’s competitive rent cost differential compared to Sydney and Brisbane,” J-Baleh said.
The e-commerce boom is placing more strain on supply. CBRE expects Victoria’s e-commerce penetration rate to reach 17% in 2021, above the national rate of 14%, and 20% by 2025. This will require around 160,000 sqm of space each year to support the growth in internet sales.
“Historically, an average of 527,600 sqm of space has been delivered to the Melbourne market each year since 2010. Therefore, to cater for the growth in e-commerce, new supply will need to be elevated by approximately 30%,” J-Baleh said.
Retail and e-commerce leases have been concentrated in the west (55%), followed by the south east (26%) and the north (14%). About 539,500 sqm was leased to retail and e-commerce tenants in 2021. Transport and logistics tenants took up 686,600 sqm and manufacturing businesses 418,200 sqm.
The report comes as RMA Automotive commits to a 21,385 sqm distribution facility in Dexus’s Merrifield Business Estate on the northern fringe suburb of Mickleham.
“This significant leasing transaction highlights the recent success of the speculative development market in Melbourne’s north, with the last three significant large scale speculative developments being either fully committed prior to practical completion, or shortly thereafter,” said CBRE’s Daniel Eramo, who negotiated the lease deal for the super-prime grade facility at 19 Innovation with colleague Joe Brzezek.
The medium-term lease was signed prior to practical completion. Pre-commitment rates of new stock have averaged 80% over the past five years.
RMA Automotive is a global supplier of modified vehicles, fleet vehicles, accessories, parts, after-sales service and training.
The facility includes nine on-grade roller shutter doors, four recessed loading docks, 14.6-metre ridge height and super canopy with expansive hardstand, allowing for truck circulation and marshalling.