Melbourne industrial transaction volumes hit record high in Q2

There were 12 sales amounting to AUD464 million, which is the highest single quarter total since 4Q18.

The take-up of industrial spaces in Melbourne remains elevated despite economic uncertainty. According to JLL, Melbourne recorded 293,400 sqm of gross take-up in 2Q20, an increase of 36% on the 1Q20 result and 68% higher than the 10-year quarterly average. This is the sixth consecutive quarter of gross take-up exceeding the 10-year quarterly average of 174,500 sqm – indicating the ongoing stability of Melbourne’s occupier market, despite prevailing economic conditions.

Demand continues to be dominated by three sectors – Retail Trade (39%), Transport, Postal & Warehousing (26%) and Manufacturing (14%). A large portion of demand from the retail sector was sourced from resilient consumer staples groups, such as supermarket retailer Coles, through pre-lease deals. The West precinct accounted for the largest share of take-up (43%), closely followed by the South East (41%).

Here's more from JLL:

Completions fall from 1Q20, but remain above recent averages

Completions of new assets declined from strong results in 1Q20 – four assets added 100,400 sqm of space to the Melbourne market. This was 7% below the 10-year quarterly average (108,500 sqm) but still higher than the average over the last two years (86,100 sqm).

Developments were overwhelmingly weighted to the West precinct, which accounted for 75% of completed floorspace in 2Q20, while the balance was located in the North precinct. The maturity and depth of the occupier market in the West was highlighted by a lower pre-commitment rate (76%), whereas the asset in the North was built for purpose.

Transaction volumes record strong recovery, yields hold steady

Rental rates remained stable across all of our tracked precincts in 2Q20, as there was little transaction evidence which could be clearly defined as having occurred exclusively after COVID-19 lockdown in Australia. Given the nature of this economic event, it is expected that incentives will move upwards to address short-term vacancy risk, rather than substantial falls in face rents.

Transaction volumes recovered from a significant drop in 1Q20 to record 12 sales totalling AUD 464.0 million. This is 50% higher than the 10-year quarterly average and the highest single quarter total since 4Q18. Major sales were seen in both the investment (66%) and development site space (26%), with the sale of an asset as part of Aldi’s eastern seaboard portfolio the largest of the quarter.

Outlook: Above-average supply delivery to continue over 2020

Supply in the second half of 2020 is projected to accelerate, with 716,100 sqm of space in the pipeline to complete over the balance of the year. Whilst there may be concerns of short-term vacancy risk due to the ample supply of new developments, as at 2Q20 this stock is 80% pre-committed – in line with long term averages. The majority of this stock will be delivered in the West precinct (54%).

It is still unclear exactly what the impacts of COVID-19 will be on the Melbourne industrial market. It is widely accepted that some sectors will continue to suffer from depressed activity, translating to reduced demand. However, it is also evident that some occupiers, particularly in consumer staples and e-commerce, are looking to strategically position themselves for post-COVID-19 norms.