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Industrial space across the eastern capitals is still hard to find, but a pipeline of projects is contributing to easing rental growth.
According to research by Knight Frank, industrial vacancy was sitting at 526,806 square metres across the eastern seaboard cities in Q2 of 2023, which is 36 per cent below the same time last year.
That constriction of space is largely due to industrial availability drying up in Sydney, where vacancies fell by 27 per cent to 32,175 square metres.
Brisbane’s availability increased by 15 per cent to 261,166 square metres and Melbourne’s vacancy increased by 37 per cent to 233,465 square metres, with the Victorian capital now home to 44 per cent of industrial vacancies in the east coast capitals.
The upward trajectory of rents, however, slowed its pace in all markets except for Adelaide in Q2. The South Australian capital recorded the strongest quarterly rental growth of 5 per cent, which Knight Frank analysts put down to the market being in a state of “catch up”.
But that’s not to say that rents are stagnating outside of Adelaide. Sydney’s rental prices still rose by 4.4 per cent, with Australia’s largest city recording the highest annual growth of 39 per cent. Perth recorded the second-largest annual growth of 27 per cent.
Jennelle Wilson, a partner on Knight Frank’s research and consulting team, noted that increases to industrial vacancy over the second quarter of this year could largely be attributed to new speculative constructions.
“Available speculative space now accounts for 48 per cent of total east coast vacancy, with 42 per cent of this still under construction and unavailable for immediate occupation,” she highlighted.
“Leasing take-up increased by 27 per cent in Q2 after a relatively quiet Q1, but remains lower than the frenetic levels of 2022, with activity still impacted by the lack of opportunities available,” Ms Wilson added.
She commented that a strong supply pipeline for 2023 will contribute to easing tight vacancy rates, particularly on the east coast, with 2.6 million square metres on track to be delivered.
Still, according to Ms Wilson, this “won’t completely satisfy demand for modern industrial space”.
James Templeton, Knight Frank’s national head of industrial logistics, added that cost-of-living pressures and dampened spending had exerted financial pressure on businesses who were taking a more critical look at their rental impost.
“However, sustained demand for new space and ongoing tight supply will continue to put upward pressure on rents, albeit at a slower pace. Growth is expected to revert towards an annual pace in the range of 5 to 8 per cent over the next 12 months,” Mr Templeton added.
Even with the sector trending towards a normal pace of rental growth, interest from investors in industrial assets remained strong in Q2.
Knight Frank reported that $1.9 billion in industrial transactions had taken place over the three-month period.
While there was a similar number of recorded sales in Q2 versus Q1, the turnover was $600 million-plus higher, indicating that high-value assets were returning to the market.
Transactions were focused on the Sydney market, with $1.3 billion sold over the quarter in the NSW capital.
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