Source: ELEVATE from Pexels.
  • Business confidence continues to rise across the nation
  • Business confidence most reflected in West Melbourne, with CBRE completing nine major lease transactions in the last four weeks
  • CBRE research shows the industrial and logistics centre is expected to improve faster compared to other sectors

With Australia’s economic recovery in full swing and the rollout of the COVID-19 vaccines, investors are beginning to return to the industrial leasing market as business confidence rises across the nation.

According to NAB’s business confidence index – which is an early signal of future economic activity such as spending, hiring, and investment – business confidence by industry has continued to climb, reaching its highest level since early 2010 last month.

IBISWorld’s forecast also displays a positive future. Their business confidence index is expected to average 6.5 index points over 2020-2021, surging in the December quarter of 2020 and representing the most optimism businesses have had since 2009.

These positive numbers are highlighted most in the recent spike in leasing activity in Melbourne’s West.

In fact, commercial real estate services and investment firm, CBRE has completed nine lease transactions totalling over 20,000 square metres of industrial space within the last four weeks.

CBRE’s Fergus Pragnell said off the back of a sluggish year of leasing activity for buildings sub-5,000sqm, industrial occupiers had displayed renewed confidence throughout the first quarter of 2021.

“Many companies sat on their hands to see how the economy would react after the 2020 recession, resulting in a backlog of pent-up demand for larger facilities in Melbourne’s west.”

Fergus Pragnell, CBRE

“Over the past four weeks, our team has completed nine leasing deals for warehouse properties sub 5,000sqm – demonstrating the strength in tenant demand from a variety of industries, including logistics, food, and automotive parts.”

Major transactions include:

An international logistics and freight forwarding company – has tripled its Melbourne footprint after leasing a 2,313sqm property at 34 Bonview Circuit. The rental is $200,000 p.a. (net).

Source: Image supplied.

In Altona, All Star Access Hire will lease a 1,750sqm warehouse at 5-15 Drake Boulevard for five years (plus options). The property, located on an 11,000sqm site, was leased for $315,000 p.a. (net).

Source: Image supplied.

Laverton North, a specialist importer of Asian foods – has leased a 4,500sqm warehouse property at 145 Fitzgerald Street for three years. The property, which will be utilised as overflow storage for the tenant’s nearby distribution facility, was leased for $315,000 p.a.

Source: Image supplied.

This uptake in the industrial leasing market coincides with CBRE’s own research, in which their Investor Intentions survey found that 69% of Australian respondents expect to be more acquisitive in 2021 relative to last year, with Industrial and Logistics assets at the top of their buy list.

Another clear indicator is changing consumer preferences for online shopping – this transition further accelerated by COVID-19 – CBRE’s Industrial and Logistics Outlook report for 2021 indicated there will be continued demand for warehouse space (see graph below).

Source: CBRE Research.

Despite some challenges during COVID-19, CBRE’s report revealed the Industrial & Logistics sector actually suffered the least in 2020, recording an increase in sales volumes in Australia, while activity in office, retail, and hotel assets declined.

Ricardo Cappelletti of CBRE said the recent leasing activity, coupled with strong owner-occupier demand, had continued to push up both rental prices and land values.

This rise in rents is expected to rise moderately across the major cities (see graph below).

Source: CBRE Research.

“After a prolonged period of limited rental growth in the market over the past few years, we’re now starting to see consistent lease rates of more than $90 per square metre for industrial buildings over 500 sqm.”

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CBRE’s full report, Restart the Uneven Recovery – Industrial & Logistics, is available online.

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