Rental growth is forecast to be over 30% in some industries, said Colliers in its latest Outlook for Australian Warehouse Demand Q3 2022 report.
The report found that national prime rents have increased by almost 19% in the 12 months leading up to the end of September 2022.
“This is the highest level of growth since we started recording industrial rent data in 2005, and is well above the long-term average of 2.4% per annum,” said Colliers’ Head of Industrial Capital Markets, Gavin Bishop.
Expected levels of growth for the next 12 months is around 10%, with easing across the following years to 7% and 5%.
Colliers’ top 10 submarkets are all expecting over 30% rental growth over the next five years.
Top 10 submarkets – 5 year rental growth forecast
Source: Colliers’ Outlook for Warehouse Demand Q3 2022 report.
Mr Bishop said, “Sophisticated capital is increasingly seeking to optimise rents in the context of high land values and lack of supply in infill markets with multi-level warehousing, and Goodman, LOGOS, ESR, Hale Capital Partners and Charter Hall are all currently seeking to construct multi-level facilities.
“Of the multi-level industrial assets currently marketed for lease in Sydney, net face rents well in excess of $300/sqm are being achieved for up to three levels, and the Qantas lands Colliers sold to LOGOS in 2020, which adjoins Sydney’s International Airport will likely see Australia’s first four to five storey warehousing.
“While South Sydney currently represents the epicentre of multi-level warehousing, several sites purchased in 2022 have been earmarked for multi-level development in Sydney’s Inner South West and Central West.
“The Melbourne market will likely track the success of multi-level developments in South Sydney before looking to roll these out in areas like Port Melbourne over the next two to three years.”
Notable current multi-level warehousing projects due to be delivered within the next five years in Sydney include Goodman’s 45 Burrows Road, Alexandria (16,078 sqm), Charter Hall’s 520 Gardners Road, Alexandria (27,509 sqm) and Hale Capital Partner’s 42- 52 Raymond Avenue, Matraville (19,461 sqm).
Multi-level warehousing is also expected to deliver occupancy savings as land-tax and council rates are shared across each level. With statutory costs accounting for around 55% of total outgoing costs on average, this can result in a large saving to tenants according to Luke Crawford, Director, Research, Colliers.
“Larger industrial facilities will help facilitate net take-up for 2023, which we are forecasting will be in the order of 3.2 million square metres nationally, due to the impact of a shortage of leasing options and moderating demand from the retail trade sector as consumer consumption eases with the rise of the cost of living.” Mr Crawford said.
“With regards to speculative projects, between now and the end of 2023, there is approximately 1.6 million sqm in the pipeline along the East Coast, dominated by the Melbourne market.
“Of this amount, almost 50% is committed with the bulk of uncommitted space stemming from 2023 likely to be committed closer to completion.”
Mr Bishop added; “Given rents are increasing on a weekly basis at present, select developers are not wanting to lease the space months before completion as they believe they are missing out on rental growth, while others are happy to lease the space to provide outcome certainty.
“Since the substantial speculative pipeline over the next 18 months is far exceeded by the level of active tenant requirements, it is unlikely to significantly impact vacancy rates.”
Adelaide (1.8%) and Brisbane (1.2%) were two of five cities with vacancy rates above 1%, according to the report. Perth and Melbourne both recorded vacancy rates of 0.9% each, and Sydney had the lowest at 0.4%.
Retail and trade had 34% of the warehouse demand pie. The report said this is due to retailers looking to develop resilience in their supply chain by holding stock locally. The 34% represents the percentage of lease deals by NLA for the first nine months of 2022.
Retail was followed closely by transport and logistics at 33%, then manufacturing at 14%, and food/cold storage at 6%.
The report also found the average deal size is increasing. Pre-commitments have surged, with the figure currently sitting at approximately 25,000 square metres; it was some 12,000 square metres a decade ago.
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