Unprecedented demand for industrial property pushing up prices

Record demand for industrial space has continued to put upward pressure on rents and property values with the trend expected to continue.

Ray White Commercial Head of Research Vanessa Rader said unprecedented demand for logistics, transport and warehousing of goods in response to online retailing growth has been the catalyst for the resurgence of the industrial market.

“We have seen Australian prime face rents grow as much as 30 per cent over the last year depending on quality, location, and size of asset,” Ms Rader said.

“Vacancy is at an all time low and the geographic spread of demand is broader than ever before, to cater for these local businesses, and to improve supply chain distribution, servicing the increased demand for rapid delivery.”

Ms Rader said there had been new supply and this had added to the shortage of quality industrial assets.

“With construction sites closed down over COVID-19 and push out in planning timeframes we have seen new supply into industrial stall,” she said.

“Coupled with the strong increases in material costs and labour shortages, any new projects which do get off the ground are dictating new highs in capital values or rents to justify completion.”

Higher land prices were also playing a part in slowing down new developments.

“Sydney continues to be the most expensive market growing by close to 25 per cent over the last year in some regions, notably for smaller lots; while ACT, Brisbane, Melbourne, Adelaide and Perth have all followed suit, increasing values of between 5 per cent and 20 per cent, adding to development costs and in turn occupancy costs,” she said.

“For owners this also translates to an increase in outgoings which is often charged to the tenant further adding to their existing high rental rates.”

Mr Rader said she expected demand for industrial assets to remain high over the next few years.

“With industrial investment recorded at a high rate over the past couple of years, demand has continued in 2022 with industrial now regarded as the investment of choice for private and institutional investors, both domestically and internationally,” she said.

“Given the ongoing lack of quality accommodation options, keeping vacancy low and the supply pipeline limited, there is further scope for rental growth across the broader industrial market over the next 12 months. 

“This is likely to keep interest in industrial as an asset class elevated, keeping yields below other commercial asset classes in the short to medium term.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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