According to CBRE, rent for industrial and logistics properties in five major Australian cities rose by an average of 6.6 per cent year-on-year through a record first quarter of 2022.
CBRE says rental prices are increasing in Sydney, Melbourne, Brisbane, Perth, and Adelaide, and predicts they willl grow by 11 per cent this year. This follows what it notes was the largest ever national rental rise in a single quarter, and exceeds the existing benchmark of five per cent, which was set last year.
The real estate investment firm’s latest research also shows demand continues to outstrip supply across these five major cities with vacancy sitting at an all-time Australian low of 1.3 per cent.
“Sydney recording the greatest growth is not surprising given the city has the lowest I&L vacancy rate in the country at 0.4 per cent,” Sass J-Baleh, CBRE’s Head of Industrial & Logistics Research Australia, says.
“The current 2022 development supply pipeline in Sydney is already 73 per cent pre-committed, and there is significant pent-up occupier demand in the market as available space is essentially non-existent,” she adds.
“In Sydney, we expect to see even stronger rent growth in infill markets, likely closer to 15 per cent per annum between 2022 and 2025.”
CBRE says Sydney recorded 11.9 per cent year-on-year growth to the end of Q1 and a 7.3 per cent quarter-on-quarter increase from Q4 2021.
It notes Perth recorded 11.1 per cent, followed by Melbourne on 8.0 per cent, Adelaide on 3.2 per cent and Brisbane on 1.7 per cent.
Cameron Grier, CBRE’s Regional Director Industrial & Logistics says the east coast’s wet summer will put extra pressure on rents after Sydney received an average annual worth of rainfall this year.
“Demand is certainly outstripping supply in most of our major markets, pushing rents skywards,” Cameron says.
“In some of the tightest-held markets, like Western Sydney, we are seeing rents go up by $5/sqm every month,” he adds.
“Bringing new supply online has been challenging, with the rain on the east coast delaying many developments by four-to-six months, with labour shortages and the inability to source materials exacerbating these issues.
“Industrial construction costs also continue to rise, which is challenging for owners and occupiers looking to lock in deals for 2023 and 2024.”
CBRE notes Australia’s e-commerce penetration rate has reached a national high of 14.6 per cent as according to NAB and, after hitting double figures in 2020, is forecast to reach 20 per cent by 2025.
Sass says the national market can take cues from e-commerce’s impact on rental growth in other countries.
“Australia is beginning to mirror the market trends seen in the UK, USA, and Canada,” Sass says.
“These countries have experienced rent growth above 10 per cent when vacancy rates were below two per cent and e-commerce penetration rates were in double-digits,” she adds.
“In the USA, rents have grown on average by around 30 per cent year-on-year over the past two years.
“As e-commerce penetration continues to rise in Australia, a lot of the growth in the next couple of years is expected to come from major markets that have historically had relatively low rental levels, such as Melbourne and Perth.”
Sass notes rising rents will not be unchartered territory for every occupier, and that location will still be key for many.
“Multinational logistic occupiers won’t be surprised by the significant rent rises expected over the next couple of years in Australia, as they have experienced this type of growth in other mature economies,” Sass says.
“Given rent makes-up around five per cent of total supply chain costs, there will be a lot of major occupiers that will pay premium to be in a location that optimises their transport costs, which make up 50 per cent.”
For more information on CBRE, click here.