Melbourne industrial occupiers face affordability issues

Industrial occupiers

According to CBRE, Melbourne’s record-low industrial vacancy rate is expected to remain sub-two per cent over the next two years while land values will continue to climb.

In its new report, CBRE says the city’s supply of zoned land is continuing to dwindle as Melbourne industrial occupiers could face affordability issues.

It adds the report forecasts that Melbourne’s tight industrial vacancy rate of 1.3 per cent – the second lowest in the country – will drive double-digit growth land-in-land values as land supply shrinks, particularly in the south-east.

“A perfect storm of heightened occupier demand and institutional appetite for industrial and logistics property has resulted in Melbourne’s zoned land supply being exhausted far sooner than expected,” James Jorgensen, CBRE Victorian State Director, Industrial & Logistics says.

“This is placing upward pressure on occupancy cost via rental rates and outgoings, which could soon result in affordability becoming a serious concern for occupiers,” he adds.

“One thing to note is that there is still plenty of rural and Green Wedge land on Melbourne’s periphery. There is increasing pressure on local councils and government to be proactive with planning controls and start to look at rezoning opportunities in these areas to address growing supply issues.”

Sass J Baleh, CBRE’s Pacific Head of Industrial & Logistics Research says the strong demand drivers for occupiers to be in Melbourne were causing the city’s industrial and logistics market to continue to perform strongly.

“Australia’s largest container port is located in Melbourne and the market continues to benefit from strong population growth, a relatively efficient infrastructure network, and the city’s competitive rent cost differential compared to Sydney and Brisbane,” Sass says.

“This will keep vacancy rates sub-two per cent and land values will continue to appreciate at double-digit growth rates over the next two years,” she adds.

“The forecasts are particularly strong for Melbourne’s south-east, where just 140ha of industrial zoned land has been identified for development over the next three years. This is two per cent of the total undeveloped zoned land supply in Melbourne, and as a result we forecast the strongest rent growth to occur in Melbourne’s south-east precinct averaging 4.6 per cent p.a. between 2022 and 2026.”

Sass also forecasts that Victoria’s e-commerce penetration rate will reach 17 per cent in 2022, which is above the national rate of 14 per cent.

“Given our forward projections on Victoria’s e-commerce penetration (reaching 20 per cent by 2025) around 160,000 sqm of space p.a. will be required to 2025 to support the growth in internet sale,” Sass says.

CBRE notes historically that an average of 527,600 sqms of space has been delivered to the Melbourne market each year since 2010. It says to cater for the growth in e-commerce, new supply will need to be elevated by 30 per cent.

For more information on CBRE, click here.


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