Melbourne industrial market undergoes investment shift

Melbourne, 21 November 2013 - Melbourne’s industrial market is expected to undergo a shift in investment sentiment towards consumer driven assets amid weakening conditions in Melbourne’s transport and logistics sector.

CBRE’s Australia Industrial MarketView Q3 report highlighted a national decline of 0.1% in industrial output nationally has slowed growth in the Melbourne industrial market, which is dominated by the transport, logistics, retail and manufacturing sectors.

CBRE Victorian Director of Industrial Markets Chris O’Brien said a change in output within transport and logistics would underpin a shift in investment strategy. 

“Melbourne still has strong investment parameters at the prime end, however, buyers are now seeking out opportunities that best leverage off consumer driven demand such as retail associated assets with long remaining lease terms,” Mr O’Brien said.

“Victoria will continue to position itself as Australia’s largest industrial property market, with Melbourne’s proximity to quality road, rail and port infrastructure, coupled with the relatively large availability of developable land, supporting investment activity.”

The report shows sluggish rental growth has seen incentives in most Melbourne markets rise, ranging from 7.9% in the east for prime assets to broadly 20% in the west and south-east industrial nodes.

Prime industrial rents in Melbourne now average $89psqm - $24 less than Sydney and $32sqm below the Brisbane average.

CBRE Senior Research Manager of Industrial Markets Luke Dixon said despite weaker occupier conditions, prime rental growth continued in Q3.

“This growth was fuelled by the west and south-east markets, which outperformed the Melbourne average of 3%, jumping 7% and 4% respectively,” Mr Dixon said.

Transport and retail occupiers can expect to have more selection in the marketplace, with 368,000sqm of industrial space due to enter the market in 2013.

“The availability of larger land parcels has supported the development of larger assets ranging in 10,000sqm to 20,000sqm,” Mr Dixon said.

Melbourne has experienced $263.5 million in industrial sales year to date, with REITs outpacing private buyers in line with national trends.

Prominent sales during the quarter include the sale of a temperature controlled facility in Keysborough to Growthpoint Property Group for $17.4 million, while in the west, a 22,000sqm facility in Laverton North was sold for $10.5 million to a private investor.

Mr Dixon said Melbourne yields were expected to stabilise and rental growth would slow coming into Q4 of 2013 – mirroring national forecasts.

“Despite this, Victoria maintains good economic fundamentals - such as high port turnover and access to large, easily accessible and developing land. The shift toward consumer driven activity in food retail and residential dwelling construction will provide supportive conditions for recovery in 2014.”