Melbourne industrial leasing activity breaks records for second consecutive quarter | Realestate Asia
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Melbourne industrial leasing activity breaks records for second consecutive quarter

Industrial gross take-up hit 546,900 sqm in Q1.

Occupier activity continues to accelerate in the Melbourne industrial market in 1Q20, as gross take-up totalled 546,900 sqm. According to JLL, this is more than double the 10-year average and is the second consecutive quarter in which gross take-up has broken the record for Melbourne. Occupier activity was weighted to the West (56%) which accounted for over 307,000 sqm of gross take-up.

In line with long term occupier trends, demand has been primarily concentrated in four key industries – transport, postal and warehousing (28%), retail trade (20%), manufacturing (18%) and wholesale trade (11%). Combined, JLL says these sectors accounted for 78% of gross take-up in the quarter, which is broadly in line with the average over the previous 10 years (89%).

Here’s more from JLL:

Four new completions come online fully pre-committed

Four projects reached practical completion in the Melbourne industrial market in 1Q21, totalling 125,700 sqm of space – 6% above the 10-year quarterly average. Most notably, all four assets were 100% pre-committed to major occupiers including Winning Group and Mazda. This is the first time that no speculative stock has been delivered to the Melbourne market since 2Q19.

Development was concentrated across the North (53%) and West (47%) precincts, with no completions recorded in either the South East or City Fringe. This is a divergence from long-term supply trends, with the South East precinct having accounted for 28% of completions over the last decade, reflective of the rapidly declining availability of land in the area.

Significant investor appetite supports pricing

A number of domestic and offshore capital sources remain committed to gaining further exposure to core industrial markets within Australia, which continues to support pricing of assets in Melbourne. Prime yields compressed by 25 bps, to midpoints ranging between 4.25% and 4.50%. The sales process of the Milestone portfolio is continuing and is expected to re-rate pricing metrics.

The continued strength of occupier demand is placing pressure on rental rates across Melbourne, pushing the whole-market average up by 0.9% in the quarter to AUD 95.19 per sqm. This was led by growth in rates in the South East precinct, which increased by 2.2% over the quarter, reflective of constrained land and asset availability in the area.

Outlook: Improving confidence to support activity

Melbourne’s occupier market is expected to continue its momentum, as businesses continue to assess their real estate needs to strategically position themselves for a post-pandemic world. We expect to see gross take-up in Melbourne remain elevated over the balance of 2021, with the availability of existing assets the key restrictive element under current market conditions.

The scale of the supply pipeline for new assets is significant for the rest of 2021, with 696,600 sqm of projects currently approved or under construction and due to complete this year. Whilst stock delivery will be elevated, near-term availability of space within these assets is limited, with the 348,400 sqm of stock due in 2Q21 already 93% pre-committed as at 1Q21.

Note: Melbourne Industrial refers to Melbourne's industrial market (all grades).

 

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