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POPULATION growth will underpin demand for industrial space in Melbourne, however an abundant supply of land means incentives are much higher compared to other cities and rents have not moved in real terms.
National head of research at Savills, Tony Crabb, said population growth will see places like Melbourne and Sydney double the size of their populations as Australia heads towards an estimated 36 million to 40 million people.
“They’re all going to require houses, they’re going to require transportation, they’re going to require food, and other consumable items. So, the demand for industrial property, not withstanding changes in technology and transportation, still looks fairly robust into the future,” he said.
Speaking at the Australian Property Institute and REIV’s 2017 State of the Market event in Melbourne on Friday, Crabb said Melbourne’s abundance of available industrial land meant it is a highly competitive market with strong competition for pre-commitment.
As a result, Crabb said incentives remain high, at up to 30% compared to an average of 8% around the country, and that in real terms rents have not changed at all. At the same time, average prime market yields have declined in the past 40 years, to 6.5% in the city fringe in December from 9.5% at the end of 1976.
The north and west regions were both 10.5% in 1976 and are now 6.5%. South-eastern was also around 10% and now around 6.5%.
According to Savills, the Melbourne industrial market is bigger than the Australian office market. There are a total of 1,204 industrial properties of more than 5,000sqm in Melbourne, double that of Sydney. Total land is currently 62,624,968sqm and developed property GLA is 17,550,224sqm.
Current reported vacancy is 1,654,581sqm with a vacancy rate of 9.4%.
There is an enormous 7,737,906sqm of development potential, or 44%, with current developed and undeveloped stock totalling 25 million sqm.
Crabb said the major occupiers of space in Melbourne are manufacturing/engineering tenants, occupying 318 properties totalling 4,871,715sqm (28% of the market); wholesale tenants with 260 properties 4,604,135sqm (26%), transport and logistics tenants across 195 properties 3,244,098sqm (18%), and construction, mining and agriculture occupants at 111 properties 1,732,530sqm (10%).
He said sales volumes have hit four consecutive years of record levels.
“That’s been driven in part by superannuation funds, REITs and syndicates (so professional investors) and more recently, overseas investors,” he said.
Offshore investors are playing a bigger role in the sector, accounting for more than $2 billion in transactions in 2016, at around 34% of deals.
“We’ve seen some very large portfolios transacted, whether that was the GIC-Ascendas portfolio in 2015, we’ve seen organisations such as Maple Tree, JP Morgan, Altis Property Partners, Goodman, AMP, Charter Hall and of course Blackstone very active in the market in portfolios in 2016,” Crabb said.
Last month, news emerged of Blackstone planning a new $US5 billion plus fund targeting shopping malls and warehouses in Australia and Southeast Asia.
Australian Property Journal
