PUSHING THE BUTTON - INDUSTRIAL DEVELOPMENT TRENDS EASTERN SEABOARD - SPECULATIVE DEVELOPMENT ON THE RISE - Knight Frank
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PUSHING
THE BUTTON
SPECULATIVE DEVELOPMENT ON THE RISE
INDUSTRIAL DEVELOPMENT TRENDS
EASTERN SEABOARD
RESEARCH | INSIGHT JULY 2019
OVERVIEW
“ ”
Logistics is high on the radar of institutions, who
appear to be actively increasing their exposure to
the industrial / logistics asset class over retail.
Industrial development activity on exists, the volume of spec projects for 2019 NEARLY 50% OF SPEC
the Eastern Seaboard is rising, with is expected to be more than double what
LEASED PRIOR TO PC
the pace of growth accelerating in was delivered in 2018.
Sydney and Melbourne on the back Early in this cycle, especially for Melbourne
of an upturn in speculative (spec) E-COMMERCE BUOYS and Sydney, the level of demand was
so high that in some cases, developers
development projects. WAREHOUSE DEMAND were unable to keep up. This has buoyed
Logistics continues to benefit from ongoing confidence to build speculatively in those
This report briefly reviews some of technology and e-commerce demand markets, as reflected in the short take-up
the development trends emerging shifts, for example same day delivery has periods on spec development.
on the Eastern Seaboard and takes already transformed into same hour delivery
In Sydney, the average time on the market is
a look at the key factors likely to in some countries. Distributors, logistics
one month, with the majority of spec being
drive the market moving forward. operators and retailers are increasingly
leased before completion. In Melbourne,
seeking out supply-chain efficiencies to
spec builds average two months on
SPECULATIVE INDUSTRIAL meet the demands of e-commerce. Not
the market following completion and in
surprisingly, take-up trends suggest that
DEVELOPMENT BOOM demand is being driven by transport /
Brisbane, it is four months.
logistics and retail growth, as well as some
It is estimated that 422,000 sqm of spec
light manufacturing, notably from companies CASE REMAINS STRONG
stock was completed across Sydney,
Melbourne and Brisbane in 2018, which is
making products that support logistics and FOR FURTHER SPEC
retail. This demand has buoyed developer
largely considered to be a record high for The short leasing periods on spec space
confidence, and development activity
the sector, especially in Sydney, where spec suggests that there does not yet appear to
is rising, with spec opportunities at the
completions are currently 238% above the be an oversupply in Melbourne and Sydney,
forefront in Melbourne and Sydney.
annual average. possibly because existing prime stock in key
In contrast to Melbourne and Sydney, spec transport nodes is in such short supply.
Spec volumes in 2019 look to far exceed
development activity in Brisbane appeared
2018, with almost 560,000 sqm of spec The rise of e-commerce and the ongoing
to peak around 2015/16. Take-up times are
projects underway or proposed to be evolution of the supply-chain is driving
improving, and new spec projects are being
completed. While Sydney is expected to changes in the sector. By improving local
considered on the back of tenant
see similar volumes of spec completions in supply-chains for last-mile delivery and
pre-commitments which underwrites
2019, it is Melbourne that is likely to reach creating hubs to meet the demand for
development risk.
record levels this year. Driven largely by industrial and logistics space, development
demand for Melbourne’s western corridor, is playing an integral role in this evolution.
where the greatest capacity for expansion
FIGURE 1
Recent Industrial Development by City, 2009-2018 Brisbane Melbourne Sydney
1,600
1,400
1,200
sqm ('000s)
1,000
800
600
400
200
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Knight Frank Research / Cordell
-2- KNIGHT FRANK RESEARCH
RISING ALLOCATIONS Australia for c$80 million, reflecting a rate of KEY FINDINGS
nearly $200 / sqm. This is also a similar rate
Logistic type assets are high on the radar to the price paid by ISPT for 30 ha in Altona 1) Spec development in Sydney
of institutional investors, who appear to be North. In Sydney, Logos Property, which has reached a decade-high in 2018,
actively increasing their exposure to the been expanding their footprint in Australia with total completions, including pre-
industrial / logistics asset class, potentially commitments, almost 200,000 sqm
since 2015, recently acquired Toll’s 15.3
diversifying away from retail. This trend above the historic average.
ha Villawood site. The acquisition includes
seems closely linked to the rapid growth a partial leaseback to Toll, with Logos to 2) Spec development is gathering
in the online environment as changes to redevelop the remaining 11.3 ha into a $200 momentum in Melbourne, with
the development landscape become more million logistics and intermodal hub. In April completions in 2019 forecast to
pronounced. 2018, Boral sold their 12.89 ha Prospect be more than double what was
Masonry site in Greystanes to ISPT for c$60 delivered last year. More than half
Underpinned by improved infrastructure, of the upcoming spec stock due in
and strong macroeconomic fundamentals, million, reflecting a rate of $532 /sqm and
Frasers’ acquired CSR’s 10 ha site in Horsley Melbourne’s West is already under offer.
as well as growth in the e-commerce /
online retail segment, the Eastern Seaboard Park for $575 / sqm. 3) Brisbane spec development is
expected to rise as vacancy hits six
markets present significant development Other major industrial owners who have year lows. Supply will remain dominated
upside in both the pre-lease and spec been active include Dexus, Stockland, by the South and Trade Coast precincts.
development markets. Mirvac and GPT, all of whom are targeting an
increase in allocation to industrial through 4) 1.49 million sqm of new industrial
Institutional owners appear especially stock has been completed in
active on this front, with those fundamentals their development pipeline.
Sydney, Melbourne and Brisbane
mentioned underpinning long-term The level of activity against the backdrop since 2018. Almost 87% of this was
confidence in the sector and possibly the of high demand has contributed to rapid added to Sydney and Melbourne’s
search for higher yielding assets. appreciation of land values over the last industrial precincts.
three years. While some of these owners 5) Circa 988,239 sqm is under
INSTITUTIONS GROW are still holding developable land that construction or proposed to be
FUTURE PIPELINE they acquired previously, which in some completed on the Eastern Seaboard
cases was 10+ years ago, the tailwind from over the remainder of 2019. Almost
There has been a significant amount of e-commerce growth seems to be creating half is being built speculatively.
institutional capital acquiring development enough demand to sustain the take-up 6) Development activity is increasingly
land throughout the last 12-18 months, momentum we are seeing from transport/ becoming institutional-led, with most
mostly in Sydney and Melbourne, logistics, retail and light manufacturing. developers heavily weighted towards the
including the acquisition of a 41.3 ha site Eastern Seaboard markets.
in Dandenong South by Frasers Property
FIGURE 2 FIGURE 3 FIGURE 4
Recent Industrial Development Average Months to Lease Spec Recent Industrial Lease Activity by Industry Sector
by Commitment Type, 2018-2019(f) Space 2017-2019
4
1,200 Pre-commitment 45% Transport,
Postal &
Owner Occupier Warehousing
1,000 Brisbane
Speculative
2
sqm ('000s)
800
% Share
16%
Melbourne of Take-up
600
2017-2019
18%
-1
Retail
400 Trade Wholesale
Sydney Trade
200
3% 15% 3%
-2 -1 0 1 2 3 4 5 Other Manufacturing
0 Industries
Sydney Melbourne Brisbane Months to lease before or after Practical Completion Undisclosed
Source: Knight Frank Research
EASTERN SEABOARD INDUSTRIAL JULY 2019 -3-
SYDNEY
“ ”
High tenant demand has resulted in short take-up
periods on speculative development projects,
typically before or upon practical completion.
DEVELOPMENT REACHES WEST HAS LION SHARE SPEC DEVELOPMENT
HISTORIC HIGH Almost 90% of last year’s pipeline was GAINS MOMENTUM
Sydney’s industrial market has undergone delivered in the Outer West and South West Between 2013 and 2017, spec projects
significant expansion over the last decade, by institutional owners, underpinned by averaged around 20% of total development,
underpinned by new development pre-commitment demand and an upswing compared to 66% in the pre-lease
in Sydney’s west. While some of the in confidence levels to build speculatively segment. On the back of the rezoning
development has been influenced by on land they have been banking. However, and supply of employment lands, the
infrastructure and the State’s employment amidst a backdrop of high tenant demand spec market began gaining momentum
land strategy, which released and rezoned and constraints surrounding the supply of in 2016, led by institutional developers
land for employment use to create growth newly zoned industrial land, there has been in Western Sydney. In 2018, spec
centres, it has also been demand led on the significant upward pressure on land values projects accounted for 40% of total
back of rising freight volumes and the need over the last three years. new development (c258,500 sqm),
for greater efficiencies in the supply-chain. a decade-high for the sector.
4.58 million sqm in new industrial space The widening of the M2 and M5 motorways,
has been added to the market since 2009, as well as the WestConnex project, has
with stock levels growing on average 5.4% positioned areas in the west with direct
per annum between 2009 and 2018. access to Sydney’s port and airports,
The pipeline of new stock topped out at making them an attractive and efficient
640,000 sqm in 2018, a record high for the transport node for companies to locate,
decade. Development volumes in 2018 were supporting above-average leasing demand.
also about 183,000 sqm above average
annual development trends.
Pre-commitment
FIGURE 5 FIGURE 6 FIGURE 7 Owner Occupier
Sydney Spec Build Average Rent $/sqm Sydney Historical Industrial Development Sydney Development by Speculative
Asking Rent By Size Bracket, 2017- 2018 Completed by Year, 2009-2018 Commitment Type 2017-2019
(forecast)#
700 700
Projection
5,0
00
-9 600 600
,99
$ 9 sq
6 m
12
m 4
sq 12 500 500
2
00 12
0
25,0 12
+ 11 8
11 6 400 400
sqm
11 4
11 2
99
11 0
14,9
300 300
00-
20 ,0
sqm ('000s)
sqm ('000s)
10,0
00 -
200 200
24
,999
100 100
sqm
15,000-19,999 sqm
0 0
2017 2018 2019
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
#2019 data includes forecast completed,
under construction and proposed
Source: Knight Frank Research Source: Knight Frank Research Source: Knight Frank Research / Cordell
-4- KNIGHT FRANK RESEARCH
FIGURE 8 MORE THAN 50% OF SPEC
Sydney Speculative Development—months to take-up from practical completion
2017-2019, by size STOCK LEASED BEFORE
COMPLETION
30,000
New technology and continued growth in
the e-commerce sector has fuelled demand
for warehousing and logistics facilities
from new entrants, as well as demand
25,000
from businesses undergoing expansion or
seeking to upgrade warehouse facilities to
improve supply-chain efficiencies. This has
placed pressure on the availability of land
20,000
in certain areas, particularly the traditional
Square metres leased
South West and Inner West, and contributed
Average Months to the recent capital growth of land.
15,000 Broadly speaking, developers have been
targeting locations in key logistics nodes
in the Outer West and South West with
demand from logistics and retail users
10,000 driving recent take-up trends, particularly
in the spec segment due to their increased
focus on transportation costs and improving
delivery frequencies.
5,000
Demand for newly developed stock is evident
from the low leasing periods seen since
2017, with more than 50% of the spec-built
0 properties being leased prior to completion.
-10.0 -5.0 0.0 5.0 10.0 15.0
Number of Months to Lease Before or After Practical Completion LOGISTICS & RETAIL DEMAND
Source: Knight Frank Research DRIVES LEASING TAKE-UP
More than half of the spec-built facilities
between 2017 and 2019 were leased by
FIGURE 9 FIGURE 10
Transport & Logistics (Warehousing &
Sydney Spec Take-up by Sector Sydney Spec Build by Precinct
Distribution) users (54.1%), while Retail and
Wholesale Trade tenants accounted for
25% of spec leasing volumes. 15% of spec
54% Transport,
Postal &
buildings were leased by Manufacturing
tenants.
Warehousing
30%
This demand has resulted in short take-up
South
West periods on spec development, typically
% Share % Share
before or upon practical completion (PC).
of Take-up By Precinct Over the 2017-2019 period, 51.7% of
2017-2019 2017-2019 buildings constructed on a spec-basis
21% 70% were leased within six months of PC being
Trade 14% Outer reached. Another 10.3% were leased on
Retail Wholesale West PC date and 34.5% were leased within
Trade the first three months following PC. 3.4%
6% were leased between three and six-months
Manufacturing 5% following PC.
Undisclosed
Source: Knight Frank Research Source: Knight Frank Research
EASTERN SEABOARD INDUSTRIAL JULY 2019 -5-
Speculative Development
Compass Logistics Estate
Eastern Creek, New South Wales
Image courtesy of Charter Hall
Artist impression.
-6- KNIGHT FRANK RESEARCH
SYDNEY (CONTINUED)
Berowra
Windsor Mt Kuring-gai
TLE
Mona Vale
Richmond
AS
R Warriewood
Y
C
FIGURE 11
D
W
WI
O NEW
ST
CH
DS
N
E
PACIFI
R
O
RI
P I T TW
EY T
UA
Sydney Recent Industrial
Agnes Spec Build by Precinct 2017-2019 Asquith
CQ
Banks
SYDN
MA
ATE
E
RD V AL
RD R
Hornsby
RI
ON A
C
M
H
D
R O
N
D
Belrose
M
RN
HE
P
RT
X Frenchs
AC
E
NN F IC
NO
Forest
I
O
HC Brookvale
RT Pymble
O
RD
HE
Marsden
LD
T O
Park
N
Castle Pennant Hills HW
Norwest
WI
Hill Gordon
Y
ND
RYD E R D
9)
(M
SO
M7
WE S TL INK
R
MO T O R Manly
M2 WA Y
Macquarie
Baulkham Park
Hills
SPIT R D
RD
RD
Glendenning
N E T WO R K
Chatswood
E
Blacktown Seven North Crows
COV
Hills GO R E HILL
Ryde Lane F W Nest
Y
Y
NE
St HW
RD
Cove MIL I TAR Y Mosman
Ryde
LA
Penrith Marys
St Neutral
GRE AT Rydalmere Leonards
Emu WES TERN Arndell Park Bay
HW Y Rosehill North
S ILV E RWAT ER R
Plains Parr
Rhodes am Sydney
RWAY Huntingwood Parramatta atta
M O TO River
ERN
Silverwater SYDNEY
I TA L
M4 W EST Eastern Sydney
Creek Greystanes Olympic
O RB
Erskine Prospect Park
Glenmore Park # Reservoir Auburn
D
Park
EASTERN DIST
Industrial Regions Horsley Wetherill Smithfield Leichhardt Bondi Bondi
STH DOWLING ST
SYDNE Y
Park WESTCONN Junction
Park
Burwood
EX
Strathfield Redfern
RD
EX Yennora
RO O K WO O D R D
N
N Regents Chullora
North C
O Fairfield
# Park Enfield
Ashfield
Alexandria Randwick
H
Intermodal Marrickville
HE R N
RT
Villawood TASMAN
South Enfield
O
Chullora Rosebery
X
N
SEA
# H UM Intermodal
NE
RT
E
ON
NO
Inner Central West Mascot
RO
HWY
TC
B
ES
Kemps Sydney
ER
W
Creek
T HE
M12 MOTORWAY
West Airport
TS
Matraville
Y
Bankstown Botany
HW
Bankstown
Proposed Badgerys W Airport Condell
Airport Creek RD
North West
ES
Liverpool Park Kingsgrove Banksmeadow
P RI NC E S
T
WAY
LIN
M O T OR
Luddenham Milperra Botany
K
South West Brighton
R
M7 Moorebank ER
N Intermodal
TE
ST Padstow Hurstville Le-Sands
Warragamba SO U WE
OU
KI
Moorebank TH La Perouse
N
Intermodal
G
Hoxton Prestons Peakhurst Botany
G
EO
Park
D
Bay
Reference Key
F ORD S P O I N T R
RG
Casula
ES
EL LY RD
B RING Kurnell
RD
Completed 2018 & 2019
Leppington
AL
Y
Taren
WA
Under construction Menai
Point
(M 9 )
E
E
FR
Likely 2019
RD
Sutherland
T WORK
Y
WA
Ingleburn
R A RD
5,000 - 10,000 sqm Caringbah
H E RN
NE
AR
Y
10000 - 20,000 sqm Cronulla
NOR T
LE
Minto
AW
L
L
TA
Intermodal
IL L
VA
RBI
Minto EW
+20,000 sqm
N
O
EN
MD
E
Y
TH
SY D NE
CA
Smeaton
Grange
Narellan
R
U TE
Source: Knight Frank Research # Multiple sites have been developed onCampbelltown
a spec basis.
O
Camden
TABLE 1
RECENT LEASING ACTIVITY OF SPECULATIVE DEVELOPMENTS — SYDNEY
Net Rent Area Term Months
Address Tenant Date
($/sqm) (sqm) (yrs) from PC
2-6 Dolerite Way, Greystanes 135 13,700 10 Beaumont Tiles Jan-19 -3
50 Wallgrove Road, Eastern Creek U/D 30,100 8 ACR Supply Partners Jan-19 0
Calibre Estate, 60 Wallgrove Road, Eastern Creek 125 21,676 5.1 ACFS Port Logistics Dec-18 -5
Eastern Creek Business Park, Stage 5, Honeycomb
120 13,050 12 LJM Sep-18 -3
Drive, Eastern Creek
1B Huntingwood Drive, Huntingwood 125 11,276 5 Cahill Transport Aug-18 0
Calibre Estate, 60 Wallgrove Road, Eastern Creek 120 21,101 7 Pet Circle Feb-18 -3
Source: Knight Frank Research U/D refers undisclosed. PC refers Practical Completion.
EASTERN SEABOARD INDUSTRIAL JULY 2019 -7-
MELBOURNE
“ ”
142,334 sqm of spec development is due to land in the
West in 2019, which is approaching double what was
recorded in 2018 (87,390 sqm) & 2017 (85,262 sqm).
NEW DEVELOPMENT While the development of new facilities SPEC DEVELOPMENT
CONTINUES TO SURGE across Melbourne has previously been
PIPELINE DOUBLES
dominated by pre-commitment leasing
Throughout the last five years, it is activity, there has been a notable upswing Although REITs and private developers are
estimated that more than 2.56 million sqm in spec development activity recently and in focused on building future developable land
of new industrial space has been added some areas, demand is outstripping supply. supplies through acquisitions, there remains
to Melbourne’s industrial precincts, with a clear focus on current spec demand for
underlying tenant demand squeezing E-COMMERCE AND TIGHT construction-ready, modern and efficient
vacancy rates and providing the impetus for facilities, particularly from the transport
new projects and appetite to land bank for
SUPPLY CREATE DEMAND and logistics sector. This sentiment has
future demand. FOR SPEC solidified the near-term outlook for spec
An increase in imports on the back of supply, with the volume of new spec
The West precinct has traditionally been
e-commerce demand is helping to buoy development anticipated to reach 280,000
the largest industrial precinct in the state
demand for warehousing and logistics sqm in 2019, more than double what was
and the most active, accounting for almost
facilities (with particular emphasis on recorded in 2018 (110,500 sqm).
half of the new stock coming online in the
last five years, however the South-East has automation). Low vacancy in many of the
also become increasingly active on the areas, particularly the West and South-East, SPEC GATHERS STEAM IN
development front. has been recognised by developers, who, MELBOURNE’S WEST
despite rising land values, are now backing
spec development with a higher level of Much of the spec development activity
SPECULATIVE DEVELOPMENT confidence due to the resilient outlook on underway has been driven by the West
NOW ON THE RADAR leasing demand. precinct, arguably where a greater number
of developable sites exists. In 2019, it
Demand for prime grade industrial remains That confidence is also feeding into future is estimated that 142,334 sqm of spec
very high and to a large extent, unsatisfied, supply plans with many institutional owners development is due be completed - this is
particularly in the West and South-East opting to land bank recently acquired approaching double what was recorded in
corridors as reflected in the increasing industrial sites. 2018 (87,390 sqm) and 2017 (85,262 sqm).
pressure on land and rental values.
Pre-commitment
FIGURE 12 FIGURE 13 FIGURE 14
Owner Occupier
Melbourne Spec Build Average Rent $/sqm Melbourne Historical Industrial Development Melbourne Development by
Asking Rent By Size Bracket, 2017- 2018 Completed by Year, 2009-2018 Commitment Type 2017-2019 Speculative
(forecast)#
600 600
Projection
5,0
00
-9 500 500
,99
$ 9 sq
90 m
m
sq 85 400 400
00
5,0 80
+2
75
sqm
70 300 300
6655
99
14,9
sqm ('000s)
sqm ('000s)
200 200
00-
20 ,0
10,0
00 -
24
100 100
,999
sqm
15,000-19,999 sqm 0 0
2017 2018 2019
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
#2019 data includes forecast completed,
under construction and proposed
Source: Knight Frank Research Source: Knight Frank Research Source: Knight Frank Research / Cordell
-8- KNIGHT FRANK RESEARCH
Just over half of Melbourne’s industrial FIGURE 15
spec development pipeline for 2019 is Melbourne Speculative Development—months to take-up from practical completion
concentrated in the West (51%), with the 2017-2019, by size
second largest share of spec activity
originating from the South East (32%). The 35,000
North is expected to account for around
18% of spec projects in 2019.
30,000
While the 88,464 sqm of spec due to come
online in the South East during 2019 is up on
the 11,593 sqm recorded in 2018, the figure
is still below the 2017 level of 110,451 sqm. 25,000
SHORT TAKE-UP TIME
Square metres leased
REFLECTS HIGH DEMAND 20,000
On average it takes two months for
Melbourne spec developments to be taken- Average Months
15,000
up post practical completion.
While take-up time in Melbourne is slightly
longer than in Sydney, which averages 10,000
one-month pre-practical completion, this
can be attributed to there being more
space available in Melbourne which allows
prospective tenants more time to inspect 5,000
properties to ensure the layout meets
their needs.
0
HALF OF THE WEST’S -5.0 0.0 5.0 10.0 15.0
UPCOMING SPEC ALREADY Number of Months to Lease Before or After Practical Completion
UNDER OFFER Source: Knight Frank Research
Over the 2017-2019 period, 46.4% of
buildings constructed on a spec-basis were
FIGURE 16 FIGURE 17
leased during the three months prior to PC. Melbourne Spec Take-up by Sector Melbourne Spec Build by Precinct
As such, now is seen to be a good time
to spec build in Melbourne as it is felt the
demand is there to absorb any such new
developments. 42% Transport,
Postal & 15%
Warehousing North
The increase in spec activity in the West
started in earnest in late 2018 and has 3%
carried over into 2019, with much of the new East
stock due to be completed in Q3 2019. We
understand that more than half of the spec
% Share
18% % Share
49%
5%
of Take-up By Precinct
Wholesale West
space coming online in Melbourne’s West 2017-2019 2017-2019
Trade Retail Trade
is already under offer, indicative of the level
6% 33%
of demand in the market and the ‘flight to
Other South East
quality’ trend towards higher-grade facilities. Industries
29%
Manufacturing
Source: Knight Frank Research Source: Knight Frank Research
EASTERN SEABOARD INDUSTRIAL JULY 2019 -9-Speculative Development
16 Vulcan Drive, Truganina, Victoria
Image courtesy of Goodman
Development currently under construction.
- 10 - KNIGHT FRANK RESEARCHMELBOURNE (CONTINUED)
FIGURE 18
Melbourne Recent Industrial Spec Build by Precinct 2017-2019
HW Y
NE R D
M E LT
Sunbury
OR
Industrial Regions
ON
SB
S H - GI
RD
Craigieburn UM
P L E N T Y RD
H
E HW
Y South
LBA
AR
Morang North
FW
Y
CA
ME
S M
Somerton
LD
HW Y
HU
HUME
ER
Epping South East
C
AC
B
Melbourne TUL
Melton
Airport LA
M Broadmeadows
West
Bacchus K E I LO
R MELT Campbellfield Thomastown AH
AR
Marsh ON RD
F W Tullamarine
East
IN
ND
Y
HW Y
Healesville
EF
MET RO
O
WE RIN G RD RO
WY
ST MA
ER Eltham City Fringe
HE A
N Essendon
D Airport
FW
R
LE SV
Y
Preston LL
NG
Reference Key
I
CI T Y
BAL WA
RI
Essendon
E
LA RB
Ravenhall RA Croydon UR
RN
TR Moonee
D WES T E TO
L I NK
Ponds Brunswick
HW Y
N
Deer Park Carlton E AS T
E RN F W Y
Doncaster
Completed 2018 & 2019
Sunshine Y
BA
LL MELBOURNE Box H W Under construction
AN Footscray M A RO O Ringwood
Richmond N DA H Hill
Brooklyn Kew
RD Likely 2019
Laverton Hawthorn
KO
Truganina WES TG AT E
Derrimut
O
F WY Camberwell Blackburn 5,000 - 10,000 sqm
W
TOOR AK
Port South RD
EE
Burwood BU RW Bayswater
Melbourne Yarra
RU P
OOD
HW
Hoppers
East Y 10000 - 20,000 sqm
Malvern
Crossing Mt Glen
Altona
Y Waverley
MONA Waverley +20,000 sqm
RD
S H
HW PR E AS
Oakleigh IN
St.Kilda CE
T
S
NE
R
S
Clayton
CE
D
FW
PE
L INK
Y
IN
Y
Scoresby
AN
FW
PR
Werribee
G
Point Mulgrave Rowville
LON
H
W
Cook
Y
Brighton Springvale
G EE
Moorabbin
Noble Park
Werribee
Little South
MA RS H
River S Mentone Dandenong
CE Hallam
IN
PR
HW
Y
Dandenong
South Berwick
K
L IN
US
Lara
MO
B AC C H
PRIN
IE
Avalon
ST
Narre Warren NA CE HW Y
Airport SH S Pakenham
EA
RD
PORT Lyndhurst FW
Y
PHILLIP Carrum Downs
FW
Y Port Arlington Cranbourne
SOU
TH
Geelong Frankston
GI
PP
Source: Knight Frank Research
SL
AN
St Leonards
D
BEL
L AR
INE
Y
W
F
Y Y
HW
TABLE 2 H
W
Mornington
HW Swan Bay
RECENT LEASING ACTIVITY OF SPECULATIVE DEVELOPMENTS — MELBOURNE
Y
HW Y
A
UL
I NS
Western Port
AS T
P EN
Queenscliff
SU RF CO
Mt Martha
N E PE A N
Portsea Net Rent Area Term Hastings Months
Address Tenant Date
B AS S
($/sqm) (sqm) (yrs) from PC
Spec 1 & 2 Canterbury Rd, Braeside $75*
GT
ON 14,144 6 IVE Group Q1-19 2
IN
RN
O
M
33 Archer Rd, Truganina $73 15,227 5 CTI Logistics Q1-18 1
93 - 103 Pacific Dr, Keysborough $85 8,745 5 IHS GLOBAL Q1-18 U/D
W/H B - Spec 6 - Atlantic Dr, Keysborough $90 7,357 5 GH Cabinets/Pazstone Q1-18 6
930 - 940 Taylors Rd, Dandenong South $85 6,651 5 Bolt Group Q1-18 4
67 Scanlon Dr, Epping $86 6,070 10 Diseb Food Group Q4-18 0
Source: Knight Frank Research U/D refers undisclosed PC refers Practical Completion *Estimated
EASTERN SEABOARD INDUSTRIAL JULY 2019 - 11 -BRISBANE
“ ”
While the availability of speculative space is at its
lowest level in four years, the timing of speculative
starts is largely expected to remain tied to
pre-commitments on an adjoining site.
SPEC CONSTRUCTION SET remain dominated by the South and Trade RENTAL PREMIUM BUT
TO INCREASE Coast precincts, where land estates and
SHORTER LEASE TERMS
institutional development activity is most
Spec development is expected to increase prevalent, due to the strong transport links The average face rents achieved for
across Brisbane as vacancy hits a six-year in these locations. speculatively developed assets since
low. Lower construction and improved 2017 is $113/sqm net, ranging from
The second half of 2019 is expected to see
tenant take-up are combining to reduce $100—$120/sqm for tenancies 5,000sqm+.
greater spec project commencements, but
vacancy and create the environment for
only two are likely to be completed this year, This represents a circa 3% premium to
rental growth.
with the remainder delivering H1 2020. the average prime market levels over the
same period.
SUPPLY HAS BEEN LOW
AVAILABLE SPEC SPACE Lease terms achieved have varied with the
As shown in Figure 20, construction levels LOWEST IN FOUR YEARS generally expected 5-7 year terms joined by
for Brisbane have been modest since 2016. a number of shorter term deals undertaken
Throughout 2017 and 2018, new supply After reaching a high of 109,420 sqm in
during H2 2018. CEVA (1 year), DHL (1.5
accounted for 481,993 sqm, with 25% the October 2016 survey, the amount of
years), Amart (8 months) and Boeing (3.5
of this (119,689 sqm) speculatively available vacant spec space has been on
years) were all spec deals done on terms
developed space. a recovering trend. The April 2019 result of
traditionally considered shorter than ideal.
49,398 sqm is a four-year low and reflective
Spec development peaked in 2015 with However, the strategy to take cashflow
of the greatly improved vacancy conditions
95,905 sqm delivered, however lower appears to have been sound with CEVA
across the wider market, which is at a
demand conditions resulted in an overhang signing to extend their tenure by a further
six-year low. The absorption of spec space
of spec space (Figure 19) in Brisbane which year and the Amart space reportedly leased
has been driven by the market preference
has only recently begun to unwind. with no downtime to Keppel Logistics on a 5
for good quality, high clearance warehouse
year deal for $115/sqm.
Spec development in 2019 will remain in line space with flexible loading facilities and
with the past three years, with 55,000 sqm good road access.
forecast to be delivered. New supply will
Pre-commitment
FIGURE 19 FIGURE 20 FIGURE 21
Owner Occupier
Brisbane Available Speculative Space Brisbane Historical Industrial Development Brisbane Development by
2009-2019 Completed by Year, 2009-2018 Commitment Type 2017-2019 Speculative
(forecast)#
120 400 400
Projection
350 350
100
Available Spec Space '000s sq m
300 300
80
250 250
60 200 200
150 150
sqm ('000s)
sqm ('000s)
40
100 100
20
50 50
0 0 0
2017 2018 2019
Jul-09
Apr-10
Jan-11
Oct-11
Jul-12
Apr-13
Jan-14
Oct-14
Jul-15
Apr-16
Jan-17
Oct-17
Jul-18
Apr-19
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
#2019 data includes forecast completed,
under construction and proposed
Source: Knight Frank Research Source: Knight Frank Research Source: Knight Frank Research / Cordell
- 12 - KNIGHT FRANK RESEARCHTIME ON THE MARKET
HAS FALLEN
The average time on the market for spec
space constructed over 2017-2019 was four
months for the Brisbane market.
This is a significant improvement from the 9.3
months period seen between completion and
take-up for spec assets constructed in 2015
and 2016, when leasing conditions were FIGURE 22
tougher. The current stock of completed Brisbane Speculative Development—months to take-up from practical completion
2017-2019, by size
and available spec space has been available
for an average of 4.75 months, ranging from
25,000
four months to seven months, with one of
these understood to have HOA signed.
SPEC TO ACCELERATE
20,000
There are only four completed spec
developments available, ranging from 2,800
sqm—17,880 sqm in the market at the time
Square metres leased
of this report, plus a further two in the early
stages of construction. With the largest of 15,000
these available spec tenancies understood
to have achieved HOA, the stock of spec
space, particularly for larger tenants, is Average Months
set to diminish further in the short term. 10,000
Vacancy analysis shows there were only
eight prime options of 10,000 sqm+ as
at the April 2019 survey across the whole
of Brisbane. This shows how quickly the 5,000
level of choice for larger prime spaces can
diminish in Brisbane. This is also reflected
by the greater level of pre-commitment
activity for 2019 (264,600 sqm) and
expected in 2020 (138,260 sqm). 0
-6 0 6 12 18 24
INSTO’S TO DOMINATE Number of Months to Lease Before or After Practical Completion
More tenants in the market (recently
Source: Knight Frank Research
dominated by 3PL, consumer goods,
food production and packaging users) are
requiring a higher standard of warehouse
FIGURE 23 FIGURE 24
design to incorporate greater automation Brisbane Spec Take-up by Sector Brisbane Spec Build by Precinct
and supply-chain efficiency. In most cases
these occupiers are willing to pay more for
new or prime space.
Transport,
Spec supply is expected to remain Postal &
dominated by the institutional funds. Spec Warehousing 34%
development will likely progress in tandem 20% Wholesale
30%
with the construction of a pre-committed Trade
adjacent facility to maximise the addition Tradecoast
% Share % Share
of assets into the funds’ pipeline with a
17% of Take-up By Precinct 51%
mitigated risk profile. 2017-2019 2017-2019 South
Trade
Although slated spec developments can be Retail
deferred or quickly converted into
pre-committed construction, Knight 7% 19%
Frank’s analysis shows circa 110,000 sqm Other
Industries
22% South East
as likely spec delivery during 2020, twice Manufacturing
the level of 2019.
Source: Knight Frank Research Source: Knight Frank Research
EASTERN SEABOARD INDUSTRIAL JULY 2019 - 13 -Speculative Development
Willawong Distribution Centre,
Queensland
Image courtesy of Stockland.
- 14 - KNIGHT FRANK RESEARCHD’A
CA B
GU
IL A
O
LT R
O
UR
BRISBANE (CONTINUED)
WY
H
E C
Caboolture
O
NE
N
C TION
D
R
Morayfield
Y
BRIBIE
HW
ISLAND
CE
B RU
Burpengary
Beachmere
Dayboro
Deception
Bay
DECEPTION
BAY
FIGURE 25 North
Lakes
Brisbane Recent Industrial Spec Build by Precinct 2017-2019
HW Y
Kippa-
Petrie Ring
Redcliffe
CE
BRU
Cashmere
Industrial Regions
Strathpine
Greater North Highvale
GA
TE
W
North Y
A
Trade Coast / Port (East) Sandgate
Albany Brendale
Creek MORETON
M
South WY
R OA D
Fernvale
Yatala (Far South)
Boondall BAY
Ferny Hills Aspley
South West
BR I S B
Chermside Banyo
ANE
Outer South West
E I
GY MP
Stafford
Nundah Brisbane
Reference Key Enoggera
Airport
VAL L E Y
Windsor Port of
Completed 2018 & 2019 Ashgrove Kelvin Pinkenba
Brisbane
Grove Hamilton Eagle
WA Under construction Fortitude Farm
HWY
RR Spring Br
EG
O
Valley isb er Lytton
Y Hill an Riv
Likely 2019 Milton
FW
e
Toowong BRISBANE
West End Murrarie Wynnum
E RN
5,000 - 10,000 sqm Hemmant
STIndooroopilly
E
Anstead Kenmore W
H Woollongabba Cannon Hill
10000 - 20,000 sqm WY
Tingalpa Manly
WY
+20,000 sqm H Graceville Annerley
Carindale
RY
C EN TENA
Darra Moorooka
Amberley
Ipswich Rocklea
MW Y
I P SWICH Chandler
Y
Salisbury Mt
W
CU Gravatt
M
NN Wacol Richlands
IN
GH
AM Goodna
Willowbank HW Y
Carole Park Macgregor Tingalpa
Y
Acacia Reservoir
W
Ridge Rochedale
M
Eight Mile
Swanbank Plains Y
WA Capalaba
LO
E
Y
AT
GA
ENARY AR N G Cleveland
NT HW E N
CE Y NT
CE Larapinta Rochedale
Springfield South
PAC IF IC
Springwood
Berrinba
Brown
Plains MWLogan
Central
Y
Mt
M
HWY
Boronia Cotton
W
Y
Heights
Peak
Crossing
Redland
Crestmead Bay
Loganholme
Source: Knight Frank Research
Y
ESA
D
IN
L
Beenleigh
TABLE 3
PA
CIF
IC
RECENT LEASING ACTIVITY OF SPECULATIVE DEVELOPMENTS — BRISBANE
Yatala
NT
MW
M OU
Net Rent Area Term Months
Y
Address Jimboomba Tenant Date
($/sqm) (sqm) (yrs) Ormeau from PC
Gooderham St, Willawong 113 c6,900 5 Apergy Apr 19 3
Pimpama
Scale Kms
26
0 1Action
2 3 4 St,
5 Wacol 110 6,735 3.5 Boeing Oct 18 14
47 Logistics Pl, Larapinta 115 7,670 1.5 DHL Oct 18 5
Huntress St, Berrinba (Ten A) 105 10,455 5 GMK Logistics Sep 18 24
28 Brickworks Dr, Rochedale 105 10,475 8 mths Amart Sep 18 9
29 Forest Way, Berrinba (Ten B) 100 10,294 1 CEVA Aug 18 18
Bld 4, Drive Industrial Estate, Richlands 98 14,670 6 Winc Jul 18 31
Bld 2, Drive Industrial Estate, Richlands U/D 6,800 5 Steinhoff Apr 18 28
103 Wayne Goss Dr, Berrinba 110 6,290 5 PACCAR Oct 17 4
Source: Knight Frank Research U/D refers undisclosed PC refers Practical Completion
EASTERN SEABOARD INDUSTRIAL JULY 2019 - 15 -OUTLOOK
“ ”
The increasing need for more sophisticated product
types and efficient supply-chain networks, may see
a rise in the demand for warehouse and distribution
facilities in infill locations in Melbourne and Sydney.
While the commentary regarding PIPELINE TO REMAIN ADAPTING BUILDING
e-commerce demand and supply- ELEVATED SPECIFICATIONS
chain efficiencies is not new, the
rise in institutional allocations There has already been a notable upswing E-commerce trends and technology
in the volume of new industrial development changes, along with supply-chain fulfillment
to industrial real estate assets
projects in the Eastern Seaboard markets demands is flowing through to warehouse
through development is becoming over the last 18 months, with Sydney and design. While some of these changes are
increasingly topical. Melbourne at the forefront, and this trend still in their infancy, expect to see greater
is expected to continue in the near-term emphasis on building design and consumer
Investment in industrial land has on the back of REITs actively targeting focused urban-spoke logistic models
been very strong recently, with expansion in the sector. moving forward. However, with landlords
several Australian and offshore less likely to see the payback on investment
The volume of speculative development has
REITs purchasing large-scale land been rising and in areas where spec activity
in technology on short-term lease exposure,
banks in Sydney and Melbourne this trend is more likely to be led by pre-
in previous cycles had elevated vacancy
commitment demand than spec.
as they look to boost asset rates, strong demand is now shortening
allocation to the sector over time take-up periods, usually before or upon
and stabilise their returns through practical completion. Institutional owners RISING DEMAND FOR INFILL
the development of logistic and have recognised the upside of this and are LOCATIONS
industrial assets in those markets growing increasingly confident in investing
Ongoing growth in the online retail
over the next three to five years. in spec projects.
environment is likely to continue driving
On that note, demand for new development demand for logistics assets and the
REITS TO REMAIN on both on a pre-lease and spec-basis is growing populations in the Eastern
expected to remain elevated. Melbourne Seaboard markets will help to sustain
FOCUSED ON LAND is likely to exceed Sydney’s spec pipeline strong occupier demand from transport
REITs are expected to continue to focus this year, driven largely by the West where / logistics, manufacturing and retail. The
on developable land supplies, competing to some extent the greatest capacity for increasing need for more sophisticated
for any significant land bank opportunities expansion exists. product types and efficient supply-chain
in Sydney and Melbourne in transport networks, as well as consumer demand,
We understand that more than half of the
corridors, such as Western Sydney and may see a rise in the demand for warehouse
spec space coming online in Melbourne is
Western Melbourne, placing continued, and distribution facilities in infill locations
already under offer, indicative of the level
albeit more modest pressure on land value in Melbourne and Sydney. Amazon wants
of demand in the market and the ‘flight to
growth in those markets especially. to make one-day delivery the default for
quality’ trend towards higher-grade facilities. its Prime-Now subscribers and Google’s
In Brisbane, landlords are beginning to see drone company Wing launched their project
improvements in leasing demand, however phase in Australia recently, suggesting that
the timing of spec projects is likely to remain improvements to supply-chain efficiencies
closely linked to pre-commitment in the to the last-mile will remain at the vanguard
short-term to help mitigate risk. of the logistics sector in the immediate term.
- 16 - KNIGHT FRANK RESEARCHImage courtesy of Stockland. EASTERN SEABOARD INDUSTRIAL JULY 2019 - 17 -
DEFINITIONS Speculative (Spec) Development: A development that commences with no tenant pre-commitment. Pre-commitment (or pre-lease): A commitment/lease with a tenant for a new development prior to any construction commencing. Prime: Asset with modern design, good condition & utility with an office component 10-30%. Located in an established industrial precinct with good access. Secondary: Asset with an older design, in reasonable/poor condition, inferior to prime stock, with an office component between 10-20%. Core Market Yield: The percentage return/yield analysed with the assessed fully leased market income is divided by the adopted value/price which has been adjusted to account for specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure, current vacancies, incentives, etc). Important Notice: © Knight Frank Australia Pty Ltd 2019 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Australia Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Australia Pty Ltd in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Australia Pty Ltd to the form and content within which it appears. - 18 - KNIGHT FRANK RESEARCH
Knight Frank Research provides
strategic advice, consultancy
services and forecasting to a wide
range of clients worldwide including
developers, investors, funding
organisations, corporate institutions
and the public sector. All our clients
recognise the need for expert
independent advice customised
to their specific needs.
RECENT MARKET-LEADING RESEARCH TEAM
RESEARCH PUBLICATIONS Ben Burston
Partner, Head of Research and Consulting
+61 2 9036 6756
Ben Burston@au.knightfrank.com
Jennelle Wilson
Partner, Queensland Research
+61 7 3246 8830
Jennelle.Wilson@au.knightfrank.com
Katy Dean
Associate Director, New South Wales
+61 2 9036 6612
Katy.Dean@au.knightfrank.com
Finn Trembath
Associate Director, Victoria
+61 3 9604 4608
Finn.Trembath@au.knightfrank.com
Sydney Industrial Market Overview Melbourne Industrial Market Overview
January 2019 February 2019 Marco Mascitelli
Senior Analyst, New South Wales
+61 2 9036 6656
Marco.Mascitelli@au.knightfrank.com
Kanwal Singh
Research Analyst, Victoria
+61 3 9604 4627
Kanwal.Singh@au.knightfrank.com
Brisbane Industrial Market Overview Australian Capital View
March 2019 Outlook 2019
Knight Frank Research Reports are available at KnightFrank.com.au/Research
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