Melbourne, 8 September 2013-Sustained rental and capital value growth in Melbourne’s industrial market is underpinning high levels of investment activity, new research shows.
CBRE’s Australia Industrial MarketView Q2 report highlighted positive fiscal conditions for investors, with rental growth across all sub markets. The west and combined south-east and eastern sub markets were the strongest performing, with 15% and 7% rental growth in the year to June 2013 respectively.
Prime industrial rents in Melbourne now average $89 per square metre, while rents in Melbourne’s secondary industrial market have lifted 7% to $71 per square metre during the same time period.
CBRE Senior Research Manager of Industrial Markets Luke Dixon said Melbourne’s industrial growth was being driven by rising demand from the transport and logistics sector.
“Transport and logistics companies are the fastest growing industrial sectors, driving demand for 10,000sqm plus facilities close to arterial roads and port hubs which Melbourne has a strategic advantage in over other states,” Mr Dixon said.
“Over 40% of Australia’s port container traffic is generated out of the Port of Melbourne, attracting some of the largest players in transport and logistics to develop space here. Developers, particularly in Melbourne’s west, are already developing large 10,000sqm to 15,000sqm sites to cater for this demand.”
Looking ahead, Mr Dixon said the market outlook remained balanced - despite falling demand from the manufacturing sector – with retail, transport and logistics clients providing supportive environment for occupier demand, albeit with slower medium term rental growth.
The report shows that in Q2, $72.8 million worth of industrial sales were completed, bringing the total for the year to $168.5 million.
In terms of supply, 317,000sqm of industrial space – buildings over 5,000sqm – is anticipated to enter the market over 2013.
“The western sub market in particular has emerged as the preferred location for AREITs speculatively developing sites over 6,000sqm,” Mr Dixon explained.
Despite the concentration of speculative development in the western sub market region, the overall Melbourne industrial supply outlook is still below the post GFC trend average of 567,000sqm – a level that would reduce the short term risk of an oversupply scenario, as seen in 2007-08.
CBRE Victorian Director of Industrial Markets Chris O’Brien said growth in Melbourne’s industrial sector was underpinned by strong investment parameters at the prime end.
“In addition to the strength of the industrial investment grade market, Melbourne’s proximity to quality road, rail and port infrastructure, as well as clearly defined planning zones, have been key drivers behind the higher level of development activity currently being seen,” Mr O’Brien said.
“Furthermore, in comparison with other states, Melbourne also has a relatively large availability of developable land enabling developers to build high quality, large-scale warehouse assets at competitive prices.”
The report shows Melbourne land values experienced growth in the year to June, with small serviced lot size values lifting 7.4% to an indicative $322 per square metre, while larger 1.6ha plus sites remained steady at $235 per square metre.
A shift in investment sentiment towards quality assets has seen prime industrial yields across Melbourne fall for five successive quarters, dipping 23 basis points since June 2012 to an indicative rate of 8%. By comparison, secondary yields have remained steady, with no change remaining at an indicative 10.11%.
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