- Yields soften due to higher funding costs
- Demand continues to outstrip supply
- Some construction timelines pushed to 2023, meaning fewer sqm to come online in 2022
The story of industrial and logistics real estate in Australia since the pandemic took off has almost invariably been one of soaring demand and plummeting supply. While that remains the case, one metric seems to have seen some impacts now.
The Q2 2022 Colliers Australian Industrial & Logistics Snapshot noted a modest softening of yields due to inflationary pressure, higher interest rates, and debt costs.
What seemingly was a constant, remains just that – occupier demand continues to outstrip supply. However, the snapshot noted that with cost of living pressures ramping up, and households tightening belts, discretionary retail may well slow; this runs parallel to ongoing supply chain challenges which the snapshot noted will likely continue for another 12 months. The upshot:
“… occupiers will continue to hold buffer stock within their warehouses.”
Colliers Australian Industrial & Logistics Snapshot Q2 2022
Rental growth has also been on the up, with the snapshot noting it is currently the highest on record. Extremely low vacancy rates have further compounded issues, and the word extreme is not used lightly – earlier this month CBRE figures showed Australia’s vacancy rates to be the lowest in the world at 0.8%.
After Australia, the nations with the lowest vacancy rate include Sweden (1.1%), Belgium (1.3%), the United Kingdom (1.6%) and Hong Kong SAR (2.3%).
The CBRE report noted the global average, as of the end of H1 2022 was 2.7%. Mainland Europe and the USA sat at 2.6% and 3.1% respectively.
Sydney’s market has been reduced from 0.4% to 0.3% – the lowest of any city globally. Last year, however, some Melbourne stock was as low as 0.27% according to CBRE.
The Colliers snapshot said for Q2 2022, national weighted average prime rents increased by 5.6%, with year on year growth recorded at 13.8%. The quarterly figure was noted as a new record high.
With competition for space at its current levels, it also comes as no surprise that prime incentives have also been moving down, the national weighted average incentive was noted on the snapshot to come in at 10.2%.
New industrial and logistics stock is gradually coming online but continues to face challenges. The snapshot said 2.8 million square metres was forecast for the supply pipeline this year, which has now been reduced to 2.5 million square metres due to material delays and extreme weather events on the east coast.
For Q2, the report said 440,000 square metres were completed, up from the previous quarter which saw 330,000 square metres.
As for softening – the snapshot noted:
“Given higher funding costs, prime yields have recorded modest levels of softening in Q2 2022 with asset values more than preserved by the significant growth in rents.”
“The national weighted prime yield softened 15 basis points to 4.14%.”
Colliers Australian Industrial & Logistics Snapshot Q2 2022
