Steve Smith, partner at real estate agency Leedwell speaks to MHD about Adelaide’s Vicinity Industrial Base where a large industrial building is up for grabs; the Northern Connector, a piece of infrastructure that’s closed the gap between the inner and outer northern markets; and the high demand for land in the city’s north where stock is low.
Leedwell is managing the leasing of an existing building within Vicinity Industrial Base (VIB) in Adelaide’s north. Steve Smith is a partner at the company who has been front and centre of a significant increase in sales and leases across the South Australian capital city’s industrial market during the past two years.
Adelaide’s new industrial estate
Steve says the 2-8 Mirage Road facility in Adelaide’s Direk is the only property available in the city’s existing high-quality industrial estate. It’s unique because it’s one of the only buildings of such quality and size that’s available in the whole Adelaide market.
He notes it presents as a modern office warehouse that is just under 7000 sqm and is situated on a 20,000 sqm site. Its current occupier is Toll who is due to relocate in September.
He adds the reasons why companies will gravitate towards the site are because they will be looking for a high-quality facility with larger than normal hardstand provisions and other features including a weighbridge, recessed loading docks, high internal clearance, and a large awning over the loading and unloading areas.
“It has all the relevant operational items that allow logistics operators to just come in, turn the lights on, fill the warehouse up and start operating,” Steve says.
Steve adds that Direk is considered the emerging premier logistics location in Adelaide.
The property will become available for lease from October onwards. Steve says it will attract occupiers in the logistics, e-commerce, and warehousing spaces.
Leedwell has been involved with over 50,000 sqm of leasing in Direk and Edinburgh over the past 18 months. It believes the connectivity of the region and more competitive rental rates are undeniably the key reasons tenants are attracted to relocating there.
The Northern Connector
The Northern Connector was completed in 2020. Steve attributes it to being the catalyst for demand increasing in these regions.
The new infrastructure provides more than 15 kms of six-lane motorway, saving time for trucks and passenger vehicles between the region and industrial areas like Regency Park and Wingfield as well as the port facilities at Outer Harbour.
“It has absolutely transformed the accessibility to the outer north and the inner northern market, which is our traditional Adelaide industrial market,” Steve says.
“The inner northern market has been running out of land for several years whereas the outer northern market has had a large supply,” he adds. “Once the Northern Connector was completed, it only took 12 months to sell 50 to 60 hectares of land in the outer region.”
“Over the last couple of years, we’ve had a huge amount of success, selling land there and that’s predominantly on the back of the infrastructure.”
He notes the Northern Connector has helped reduce travel time from circa 25 to 10 minutes between the two industrial markets.
Steve notes new developments for tenants in the region include CHEP, 15,000 sqm; Apex Steel, 17,500 sqm; M3 Logistics, 6700 sqm while new developments for owner-occupiers include GTS Logistics, Hobsen Engineering and Direct Freight Express. These tenants have been attracted to the region due to affordability and ease of access.
Developers are mobilising and preparing development applications to construct industrial facilities to meet the demand on spec or pre-committing development outcomes with tenants prior to construction starting.
Lack of land
According to Steve, institutions historically have owned stabilised assets in Adelaide rather than development assets – he says this dates back to the mid-2000s.
“We had Australand, Goodman, Stockland and Dexus as the main groups that were operating,” he explains.
“Since the GFC, many of those groups have not considered Adelaide from a development perspective and maintained a focus on the stabilised income producing assets.
“Over the past 24 months in particular, the focus has returned to Adelaide given the strength of the industrial market across Australia, and the growth that the institutions are looking for, to continue their development pipeline, and their funds under management models.
“They’ve turned their attention to the Adelaide market because they haven’t necessarily had a presence here in the past. Some of those groups include Charter Hall, Quintessential, Pelligra, Centuria, and ESR.”
He says developers had noticed land parcels vanishing before their eyes as owner-occupiers bought more than 40 hectares of land throughout the region, forcing them to scramble to secure stock so they could compete as well as ensure they continued to grow their property portfolio while offering opportunities to their customer base across the country.
These groups have bought a lot of the remaining stock, which has resulted in land scarcity. Steve says new developments are now needed to solve the supply problem.
Historically, the land sale rates per square metre in the outer northern market were almost 50 per cent lower than the rate in the inner market. The values are now closer than they were previously thanks to the Northern Connector.
“The demand increased so quickly because the land sale rate hadn’t necessarily caught up,” Steve says.
“It’s still affordable now despite the completion of the Northern Connector. You can still pay a competitive land rate and you’ve got the advantage of a closer proximity to major transport infrastructure.
“The solution to the lack of supply needs to be development-led, and developers need to back themselves and their agents in to attract and secure leasing outcomes during the development program.
“We’re now in that situation where several developers have submitted applications to council to develop industrial property in ranges from 1500 sqm up to 10,000 sqm.
“And that is still going to be lagging the demand because it will take six to 12 months to bring these properties out of the ground, but the more quickly developers can undertake these works, the quicker that the demand can be met.
“In terms of where we’re sitting in the market, some of the key drivers for these new developments relate back to stock levels being so limited coupled with rental growth opportunities. The time is now!”
For more information on Leedwell, click here.