Industrial Property Starts to Makes Sense

INTERESTINGLY, the Industrial property market in metropolitan Melbourne still remains the largest in Australia.

The market has evolved significantly over the last two decades — largely underpinned by the strong growth in supply chain sectors (ie: the transport, logistics and distributions sectors).

In addition, there has been significant infrastructure investment, population and workforce growth … along with the entry of major institutions and developers.

Your choice has become wider

As a result, what you are seeing is quite a diversity in the types of industrial/logistics buildings demanded by corporate and other users — which have included … manufacturers, as well as operators of warehouse/distribution and special temperature-controlled facilities.

The Industrial market was one of the hardest hit by the GFC; and it continues to be impacted by tough conditions, although they have is stabilised since 2011.

Land values? have still not yet fully recovered from the depths of the decline experienced through the GFC, and remain at a 15% to 20% discount to pre-GFC values.

Yields and rents appear to have stabilised. However, some leasing still remains patchy … with transport, distribution and logistics sectors performing the strongest — given the impact felt from increasing supply chain needs of online retailing.

Absorption rates also remain subdued, at around 60% of average absorption rates observed through the 2000s.

Effectively, new supply has stalled; with limited strata unit projects emerging within in-fill locations. This lack of supply has continued to affect Melbourne’s shortage of prime-grade stock, with many tenants being pushed into secondary-grade industrial buildings as a result.

Growth Corridor Plans from Melbourne’s urban fringe have identified an additional 5,000 hectares of industrial land, which could come on to the market over the next 30 years.

Bottom Line : This additional supply equates to approximately 40 years of demand — in addition to the 30 years of demand currently in the market.

Therefore, closer integration between logistics and online retailing will become an important driver of future industrial demand — especially as consumer sentiment picks up.


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