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According to JLL’s metrics, industrial markets have seen the greatest level of industrial rental growth in more than three decades.
The firm’s research, collected quarterly, measures the weighted average of rental growth on a state-by-state basis. At the conclusion of 2022’s second quarter, JLL’s research found that prime net face rents have increased by 6.22 per cent quarter on quarter nationally, outperforming the previous 25-year record set last quarter of 3.25 per cent.
In addition, the firm determined that nationally, year-on-year rental growth has averaged 14.9 per cent.
According to JLL’s Australian head of industrial and logistics Peter Blade, while this might be good news for investors already in the sector, the situation for tenants will get worse before it gets better.
He noted there are currently “limited space options for tenants in most markets just as they need to increase inventory levels in the lead up to Christmas”.
The year bodes well for new space hitting the market; however, with 2022 projected to record over 2.5 million square metres of completion for industrial space — a little over 1 million of which is set to hit the market in the second half of the year.
But Mr Blade noted that investors are being cautious about listing their forthcoming space too soon.
“Though there is some availability in upcoming supply, many developers are waiting to closer to practical completion dates before signing deals with tenants, knowing that rents are escalating fast and seeking to lock tenants into higher rental commitments,” he said.
Limited pushback on rental increases may have encouraged others to further develop their portfolios, looking to land acquisitions to accommodate industrial development.
“JLL Research has recorded very strong land value growth in a number of precincts over the quarter,” Mr Blade noted.
Land values for one-hectare lots in South Sydney have increased to $2,750 per square metre (an increase of 20 per cent) and from $730 to $1,000 per square metre (up 37 per cent) in Melbourne’s Laverton North.
“Land values have accelerated significantly over the last two-and-a-half years as developers respond to elevated occupier demand,” Mr Blade said.
“Land values for one-hectare lots increased by as much as 35 per cent to over 210 per cent depending on the market since the end of 2019.”
The company’s Australian senior director and head of industrial and logistics research Annabel McFarlane added, however, that the extraordinary cycle of industrial land value growth has likely come to an end, slowing the pace of development.
“Most of the uplifts in value occurred early in the quarter and we expect that land values have now peaked,” Ms McFarlane said.
“Developers and investors are managing a multitude of cost elements in feasibilities. Increasing construction costs, wage costs, and land costs have combined with the RBA’s tightening monetary policy … increasing the cost of debt for developers.”
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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