Demand is still outpacing supply as the pace of rental growth accelerates according to Savills’ Shed Briefing. Image – Canva.
  • Savills National Head of Research says there is both a record-low vacancy and high level of pre-commitment
  • East coast markets growth rate is more than seven times the 15-year average
  • Sydney and Brisbane have little to no availability for spaces above 20,000 sqm

A newly released report from Savills reveals record rent surges in the Australian industrial property market while vacancy rates remain at a historic low.

The east coast markets are experiencing a growth rate that is more than seven times their 15-year average after a solid 18 months of unparalleled occupier demand, according to Savills’ new Shed Briefing: Industrial Spotlight Report for Q1 April 2023 

Savills National Head of Research Katy Dean says the elevated industrial rents are being seen across all of Australia’s major cities.

Over the past three years, prime rents on the east coast have increased by almost 40%, while secondary rents have grown by 45%, with certain sub-markets seeing growth exceeding 50%. This significant rental growth has enabled property owners to benefit from market rent reversion and inflation-linked reviews.

“Combined with a very high level of demand relative to limited supply, we’re seeing not only record-low vacancy, but also a very high level of pre-commitment.”

Katy Dean, Savills National Head of Research

Real Estate Investment Trusts (REITs) have reported occupancy rates of 99-100% as well as an 80% or more commitment rate on new projects, according to Savills Research.

This has created a tight market with limited space for leasing. Savills reported little to no availability across Sydney and Brisbane for spaces above 20,000 square metres.

Low supply coupled with sustained high demand has seen the sector placed under further pressure. Most new supply is being pre-committed while build times extend amid rising construction costs.

“With all existing space occupied and such strong commitment on new projects, it is hard to see industrial vacancy rates shifting in the short to medium term,” Dean said.

Rents are increasing seven times their annual average pace
Annual Prime Rental Growth Rate % (East Coast Average)

Source: Savills Research

The higher industrial rents are being felt across Australia’s capitals, but none more so than Sydney.

The harbour city currently has the highest prime net face rents in the country, which increased by 36.4% over the year and saw a further 4.4% increase in Q1.

Savills National Industrial Head Michael Wall attributed the growth to limited land supply.

“Sydney’s industrial land prices have rapidly escalated over the last two years, with the double-digit growth rates reflecting constraints to land supply during a period of historically high occupier demand.”

“Certain pockets have experienced some negative growth – such as the South West and Outer South West corridors, but it’s important to note, these prices are still nearly twice that of two years ago,” Wall said.

Prime net face rents
By core market, $/sqm net face rent average

Source: Savills Research

Melbourne’s rental market has also been robust, with rents growing by an average of 16.4% year-on-year and 3.3% growth recorded in Q1.

Brisbane experienced a 14% year-on-year growth and a 2.8% increase in Q1, while Perth had an average yearly rise of 15.3% and 5.3% growth in Q1. Adelaide rents increased by 9.3% over the year, but growth stabilised in Q1 after a 5.2% increase in Q3 2022.

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