- East Coast capitals record 18% fall in industrial vacancies across Q1 2023
- A record supply in 2023 is not expected to alleviate the supply imbalance
- Rental growth above 8% across Brisbane and Sydney
The industrial real estate market may seem to have cooled a tad, but the latest vacancy rates show it may be more than just a smoulder.
According to the latest research from Knight Frank, a double digit fall in available industrial space means the market has just under 450,000 square metres on offer up and down the east coast of Australia.
The Australian Industrial Review Q1 2023 found that Sydney is the tightest market in the east with only 43,759 square metres available, a 51% contraction. Melbourne has 174,330 square metres on offer, and Brisbane has 226,592 square metres.
Eastern seaboard – available space
The overall drop in vacancy across the Eastern Seaboard cities follows a 56% fall over the 2022 calendar year, and an eight per cent fall over Q4 2022 to see vacancy sit at 547,748 square metres.
Across Australia’s East Coast there is now almost 2 million square metres less space available now than was the case at the peak in October 2020, when there were 2,405,857 square metres available, equating to an 82% fall.
Knight Frank Partner, Research and Consulting Jennelle Wilson said take up over the first quarter of 2023 was impacted by the limited opportunities on the market, being 26% below the three-year average, totalling 515,653 square metres.
“Intense competition among tenants for limited available space resulted in further rental growth across all the Eastern Seaboard capital cities,” she said.
“Brisbane led the quarterly rental growth by an 8.6% increase, followed by Sydney at 8.2%, with this city overtaking Perth for the fastest growing rents year on year, with prime rents up by 38% over 12 months.
Prime rent growth
“Adelaide and Perth reported 2.5% and two per cent rental growth over the same period, while Melbourne saw moderate growth of 1.5% on limited deals across most submarkets.
“Incentives continued to decline in Q1 and currently average 10% across the Eastern Seaboard, which stimulated stronger growth in effective rents over the quarter.”
According to Knight Frank data, both prime (340,921sqm) and secondary industrial space (103,760sqm) are at record lows as tenants compete for space.
Knight Frank National Head of Industrial Logistics James Templeton said ongoing strong tenant demand was being met with constrained supply, which had led to increased competition.
“Secondary vacancy is now particularly low as tenants are grabbing immediately available options, with less of a concern regarding grade as long as it is functional,” he said.
“Prime vacancy is also seriously low, however, this grade is being somewhat replenished as speculative developments start construction.
“Indeed speculative space accounts for more than two-thirds of the current vacancy – with almost 194,500 square metres of this still under construction and not available for imminent occupation.
“As existing options have been absorbed speculative developments have taken a greater weighting in available space.
Eastern seaboard vacancy
“This has also supported further prime rental growth with speculative developments needing to set rents at a level which makes the project feasible – at times a further step upward for the market.
“To date these rents have been accepted and embraced by tenants and thus rental growth has remained accelerated.”
Looking ahead, the gradual easing of material cost and supply chain pressures should aid the Eastern Seaboard supply pipeline, allowing it to reach a record of circa 2.5 million square metres in 2023, said Mr Templeton.
“However, 43% of the pipeline is already pre-committed and 10% is owner occupied, so it is unlikely that we will see a significant amount of speculative space entering the market and alleviating the current widespread undersupply,” he said.
Knight Frank’s research found Brisbane has a substantial development pipeline, with 843,573 square metres forecast to be delivered in 2023, compared to its long-term average of 357,940 square metres.
In Sydney new developments are anticipated to reach 807,641 square metres, while Melbourne will deliver approximately 845,231 square metres.
