Saying no to renting, why industrial owner occupiers are on the rise

• Industrial property market has seen a surge in owner occupier demand despite rising debt costs.
• Businesses are looking to ensure long-term stability through buying.
• Rising cost of renting industrial facilities is also a factor.

The rising cost of borrowing has not deterred owner occupiers who are firm on ensuring business stability and mitigating the soaring cost of renting.

Colliers director of industrial WA Sam Hammond says the agency has been inundated with owner occupier enquiries. He also observed that industrial tenancies have been footing a huge bill, with rents growing by over 35% across the past two years.

Undeterred by a painful economic climate

The determination of owner occupiers is clear, with the elevated level of enquiry occurring while interest rates are rising sharply, global conflict fuels uncertainty, and the barriers to borrowing are pushed higher.

The desire for a place to call home has been driven by the requirement for businesses to secure a permanent base of operations.

Colliers manager of industrial WA, Hayden Dick, expressed his surprise at the number of groups reaching out to enquire about the purchase of a particular asset.

“We are currently running a leasing campaign for 146 Maddington Road, Maddington, a brand new 15,000 sqm warehouse and logistics facility due for practical completion in Q1 2024,” he said.

Dick believes the demand for this asset is due to strong and sustained rental growth experienced over the last 24 months, with expectations of future rental growth and appreciation in capital values.

More sensible to buy than rent

The experts added that buyers were looking beyond just mitigating increased rental costs; becoming an owner occupier provided businesses with long-term stability and allowed them to build equity over time.

The strong demand for industrial facilities is expected to continue, according to Dick.

“Locally owned businesses we are dealing with have strong order books which tend to underpin their investment appetite,” he said.

How much do industrial rents cost?

According to the Knight Frank Australian Industrial Report Q1 2023, limited availability is driving widespread rental growth, but the increased cost of funding has led to a change in sentiment amongst investors.

Investment activity levels were constrained in Q1, dipping to $833 million nationally, down from $4.2 billion in Q1 2022.

The report found that Sydney’s prime net face rents were $227 per square metre (sqm), with Adelaide recording the lowest price at $116 per sqm.

Key market indicators for Q1 2023

Source: Knight Frank, Australian Industrial Report Q1 2023.