Norfolk Commercial, a distinguished boutique commercial property agency, is dedicated to providing specialised property services. Today, we take an in-depth look at the Australian industrial real estate market, which has exhibited remarkable resilience and growth despite macroeconomic challenges.
According to a report published by Knight Frank, the Australian industrial real estate market has witnessed a remarkable reduction in the vacancy rate. The Australian Industrial Review Q1 2023 indicates that the market has under 450,000 square meters of industrial space available along the east coast of Australia, translating to a significant double-digit percentage fall.
Sydney stands out as the tightest market in the east, with only 43,759 square meters available, amounting to a 51% contraction. Melbourne and Brisbane have 174,330 and 226,592 square meters available, respectively. This reduction follows a 56% fall during the 2022 calendar year.
The industrial space has shrunk by nearly 2 million square meters compared to the peak in October 2020, reflecting an 82% fall.
The scarcity of industrial spaces has sparked an intense competition among tenants, driving rental prices upward across all Eastern Seaboard capital cities. Knight Frank’s Partner, Research and Consulting, Jennelle Wilson, highlighted that take-up in Q1 2023 was 26% below the three-year average at 515,653 square meters, which can be attributed to limited opportunities in the market.
Brisbane led the quarterly rental growth with an 8.6% increase, closely followed by Sydney at 8.2%. Sydney also surpassed Perth in the fastest-growing rents year on year, with prime rents surging by 38% over 12 months. Melbourne observed moderate growth of 1.5% due to limited deals across most submarkets.
Incentives have continued to decline, and prime and secondary industrial space are at record lows, intensifying the competition among tenants.
Knight Frank’s National Head of Industrial Logistics, James Templeton, commented on the constrained supply meeting strong tenant demand. Secondary vacancies are particularly low as tenants prioritise functionality over grade. However, there’s a sliver of hope as speculative developments have started, and prime vacancies are being slowly replenished.
It is expected that easing material costs and supply chain pressures will help the Eastern Seaboard’s supply pipeline reach approximately 2.5 million square meters in 2023. However, with 43% of the pipeline pre-committed and 10% owner-occupied, it is unlikely that a significant amount of speculative space will enter the market soon.
As a sophisticated investor, SMSF trustee, or stakeholder in commercial property, understanding the dynamics of the industrial real estate market is critical. The significant reduction in vacancies and the consequent escalation in rental prices demonstrate the resiliency and potential of the Australian industrial real estate sector.
At Norfolk Commercial, we provide expert advice, insights, and specialised property services to assist our clients in making informed investment decisions in the dynamic commercial property landscape.
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In this comprehensive report, we will shed light on the remarkable resilience and growth of the Australian industrial real estate market, backed by data from the latest research.