Melbourne’s industrial property market is facing a critical shortage in serviced industrial land, according to a recent report by Colliers International.
The Colliers report found that due to the diminishing availability of serviced industrial land, particularly in areas such as Port Melbourne where there is less than six hectares of subdivided land currently available, land values have increased by up to 20% across Melbourne.
Colliers believes the sustained high level of demand will ensure those values will continue to increase for the remainder of 2006.
According to Colliers, 54% of the land transactions occurred in the allotment size range of less than 5,000 sqm and 29% in the area range above 10,000 sqm.
The western region continues to dominate land sales with net take up of 141 ha over 2004/05.
Colliers research analyst Amita Mehrotra admitted that yet another predicament facing the industrial market is the critical shortage of existing buildings for larger users – over 5,000 sqm.
Mehrotra said that the shortage of stock over 5000 sqm has given rise to an increasing number of pre-commitments and has driven a new wave of speculative development especially in the west and the south-east where new construction totals circa 100,000 sqm and 65,000 sqm respectively.
However, three factors that will continue to force up rentals for large users are increasing land values, rising construction costs and limited existing stock.
“The smaller end of the industrial market under 5000 sqm continues to experience a trend towards owner-occupation driven by attractive bank interest rates, which has meant greater landlord competition for tenants keeping rent rises to a minimum,” Mehrotra added.
Mehrorta said institutional investors are relishing the industrial boom and will continue to dominate the large end of the investment market.
However, the dominance of the large institutions in the industrial investment market has made it very difficult for syndicates and owner-occupiers to enter the market.
“The shortage of quality investment stock, together with robust demand, is driving greater interest in secondary stock which should see a firming of yields in that market,” Mehrorta added.
“In a very tightly held marketplace, prime assets with long, secure leases to quality tenants, in key locations, with development or expansionary potential, will continue to attract a high level of interest and maintain firm yields.”
The Colliers report concluded that the lack of investment grade stock has also sparked a trend to off-market transactions.
By Ted McDonnell
