This article is from the Australian Property Journal archive
ONE of Melbourne’s key industrial markets will see new developments by global players kick off in its emerging suburbs for the first time, as its vacancy rate continues to hover at around half of the city-wide average.
For the first time in the south-east’s history, institutional built form options will be delivered in emerging markets such as Pakenham and Officer South by Canadian giant Brookfield and pan-Asian logistics leader ESR, with 59,089 sqm of supply scheduled for delivery in the last quarter of 2025.
Across the entire year, Colliers is forecasting 261,000 sqm across 28 tenancies. Some 61,000 sqm across eight tenancies is already committed, leaving 200,000 sqm over 20 tenancies, or 77%. Notable commitments include We-Ef Lighting in Braeside with Urban Logistics Co, Dexion in Dandenong with Pellicano, and Laurence and Hanson in Moorabbin with Goodman.
The region has a tight vacancy rate of just 1.35%, compared with total Melbourne vacancy of 2.6%, driven by limited land supply and a weak speculative pipeline.
“The upcoming supply pipeline is expected to provide a welcomed relief for occupiers, offering more competitive tension and choices in the marketplace,” said Luke Lowden of Colliers.
Sensing the competition for supply, several major players have picked up key sites in the south-east n 2024. In Mulgrave, Elanor Investors Group teamed up with PGIM Real Estate to acquire a 19-hectare site home to a Woolworths storage facility that they will turn into a 113,000 sqm logistics estate, while ESR has recently partnered with Japanese giant Mitsubishi Estate Asia to develop a $175 million industrial estate in Pakenham, and MAB Corporation snapped up more than 32 hectares of former quarry land in Cranbourne East.
In Clayton South, MaxCap and Troon Group received planning approval for a 60,000 sqm industrial estate with nine warehouses on a 10-hectare site the joint venture acquired last year for $50 million.
As a result of the south-east’s very low vacancy rate, average net face rents in 2024 grew to $147 per sqm, up 11.13% from $132 per sqm in 2023, Colliers data shows. Prime grade net face rents have grown at a rate double that of secondary, rising to $153 per sqm, or 14.59%, against the 7.21% rise in secondary rents to $138 per sqm.
“This growth has occurred despite occupiers’ notable lack of confidence in committing to these elevated rents,” said Colliers’ James Stott.
“Interestingly, it has been achieved despite annualised leasing volumes having declined, underscoring the critical role of supply-side factors in shaping outcomes for landlords and developers in the south-east.”
Colliers estimates 67% of the developments due for completion in the current December quarter are pre-committed.
“The region’s robust fundamentals, particularly the high pre-commitment rate and chronic undersupply, have cushioned it against the softening conditions other major metro markets have faced nationwide,” said James Stott.
According to Savills’ most recent Industrial Shed Briefing, major markets such as Sydney west, Melbourne west and Brisbane southside have all seen rental growth stall as the cycle of record growth winds up and the market rebalances.
Despite some 2.3 million sqm of warehouses currently under construction across the country and a normalisation in demand following the pandemic boom, Australia’s industrial market is set to remain severely undersupplied, with construction costs and servicing delays set to temper supply completions in the coming years.
The Victorian government this week announced it would be looking to unlock 6,000 hectares of industrial land over a decade, including a review of zoning in the south-east market of Hastings.
Colliers data shows rate changes for outgoings has increased faster than net face rents – almost doubling since 2021. This increase in gross occupancy costs combined with net face rent growth has impacted overall gross face rental growth from an additional $12 per sqm to $37 per sqm. The rise has been largely driven by land tax increases, seeing more than 30% increases in some instances, bringing the average gross face rents to $184 per sqm, up from $122 per sqm in 2021, a jump of 35% or $64 per sqm.
