Affordability Issues Could Arise for Melbourne Industrial Occupiers as Land Values Continue to Climb

Melbourne’s record low industrial vacancy rate is expected to remain sub 2% over the next two years and land values will continue to climb according to a new CBRE report which highlights that the city’s supply of zoned land is continuing to dwindle. 

The report forecasts that Melbourne’s tight industrial vacancy rate of 1.3% - the second lowest in the country – will drive double digit growth land in land values as land supply shrinks, particularly in the south-east.  

This is driving the feasibility of multi-storey warehousing in Melbourne and could result in affordability issues for occupiers. 

CBRE Victorian State Director, Industrial & Logistics, James Jorgensen noted, “A perfect storm of heightened occupier demand and institutional appetite for industrial & logistics property has resulted in Melbourne’s zoned land supply being exhausted far sooner than expected. This is placing upward pressure on occupancy costs via rental rates and outgoings, which could soon result in affordability becoming a serious concern for occupiers.  

“One thing to note is that there is still plenty of rural and Green Wedge land on Melbourne’s periphery. There is increasing pressure on local councils and government to be proactive with planning controls and start to look at rezoning opportunities in these areas to address growing supply issues,” Mr Jorgensen added. 

CBRE’s Pacific Head of Industrial & Logistics Research Sass J Baleh said strong demand drivers for occupiers to be located in Melbourne were driving the continued strong performance of the city’s industrial & logistics market.  

“Australia’s largest container port is located in Melbourne and the market continues to benefit from strong population growth, a relatively efficient infrastructure network, and the city’s competitive rent cost differential compared to Sydney and Brisbane,” Ms J-Baleh said. 

“This will keep vacancy rates sub-2% and land values will continue to appreciate at double digit growth rates over the next two years. The forecasts are particularly strong for Melbourne’s south-east, where just 140ha of industrial zoned land has been identified for development over the next three years. This is 2% of the total undeveloped zoned land supply in Melbourne, and as a result we forecast the strongest rent growth to occur in Melbourne’s south-east precinct averaging 4.6% p.a. between 2022 and 2026.” 

Ms J-Baleh is also forecasting that Victoria’s e-commerce penetration rate will reach 17% in 2022, which is above the national rate of 14%. 

“Given our forward projections on Victoria’s e-commerce penetration (reaching 20% by 2025) around 160,000 sqm of space p.a. will be required to 2025 to support the growth in internet sale,” Ms J-Baleh noted. 

Historically, an average of 527,600 sqm of space has been delivered to the Melbourne market each year since 2010. Therefore, to cater for the growth in e-commerce, new supply will need to be elevated by ≈30%.”
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