Australia’s industrial gross take-up hits 15-year highs in Q1

Gross take-up reached over 1.1 million sqm, outperforming the 10-year quarterly average by 91%.

A recent report by JLL reveals that the industrial property market in Australia continues to undergo a period of significant activity, with structural tailwinds supporting occupier expansion across the country. In Q1, most markets recorded above average occupier activity and below-average supply delivery, which will continue to place pressure on vacancy and support rental collection. 

National leasing activity trended up on a q-o-q basis, as gross take-up reached a new record high, eclipsing the previous record set in 4Q05. According to JLL, gross take-up in 1Q21 totalled 1,153,300 sqm, outperforming the 10-year quarterly average by 91%. Activity was concentrated in the Melbourne (47%) market, followed by Sydney (27%) and Brisbane. Following on from a record full-year total for gross take-up in 2020, the rolling 12 month total (3,535,200 sqm) has also reached a new record high, 23% higher than the previous average (2,865,900 sqm) recorded in 1Q16. 

Here’s more from JLL:

Delivery of new assets trended down again, as the impacts of delaying new development commencements began to impact completion totals. A total of 176,900 sqm of stock was delivered across 10 projects nationally, a decline of 52% from the 10-year quarterly average. The absence of speculative stock commencements through the middle of 2020 was evident in both stock delivery totals and in the average pre-commitment rate (100%) for these assets. 

The absence of any non-committed stock completing this quarter is significantly above the long-term average (83%) and is the first time JLL Research has recorded no available space delivered in new assets in a single quarter. Stock delivery will trend up over the rest of the year, as there is 1.55 million sqm of additional space which is anticipated to complete over the remainder of 2021 (68% pre-committed). 

National prime average weighted face rents remained relatively stable in 1Q21, with growth recorded across the Eastern Seaboard. Consistent with much of 2020, minor rental growth was recorded in parts of Sydney, Melbourne and Brisbane, which brought y-o-y growth in rents to 0.8%. Notably, this has outperformed the equivalent metric for both office (+0.5%) and regional retail (-6.0%) assets. The rapid growth in occupier activity seen so far in 2021 will likely provide scope for rental growth to return to pre-pandemic levels for most markets this year. 

The average GSP weighted prime national yield recorded compression of 19 basis point to 4.87% in 1Q21. This is the first time that the national midpoint has fallen to below 5% since the time series began in 1988 and sits 202 basis points (bps) below the bottom of the previous cycle. The spread to indexed bond yields has fallen to close to the long-term average for CBD office assets, demonstrating the shifting risk perceptions of investors looking at the industrial market in Australia. With the transaction of the record-breaking Milestone portfolio in early 2Q21, there is expectation that further yield compression will occur in 2021.