RESEARCH - MARKET OVERVIEW AUGUST 2019 SPEC DEVELOPMENT DRIVES INDUSTRIAL MARKET
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RESEARCH MARKET OVERVIEW AUGUST 2019 SPEC DEVELOPMENT DRIVES INDUSTRIAL MARKET
Population Growth
AUS: 1.6% VIC: 2.2%
YoYΔ: Dec ‘18
Surging population development with much of this
Economic Growth stimulates growth in E- development concentrated in
commerce Melbourne’s western suburbs.
AUS: 2.8% VIC: 3.5%
YoYΔ: Jun ‘18 Victoria’s economy continues to perform Record infrastructure
strongly off the back of record population investment, especially in
Unemployment Rate growth. According to the Australian Melbourne’s west
Bureau of Statistics, over the last CY
AUS: 5.2% VIC:4.5% Victoria’s population grew by 2.2%, The State Government has responded to
As at: Jun ‘19 ahead of the national growth figure of Melbourne’s unprecedented growth – a
1.6%, and in line with this over the 2017- record $54.4 billion worth of
18 FY the state’s economy grew by 3. infrastructure projects are currently
Online Retail Trade 5%, against the national rate of 2.8%. underway in Victoria, with the potential
for a further $80 billion of investment.
AUS:+12% (at $1,644.7m) Victoria’s booming population is having a Reflecting the growth in industrial activity
YoYΔ: May‘19 flow-on effect on E-commerce. in Melbourne’s west, a considerable
According to Australia Post, at a state focus of Victoria’s current infrastructure
level Victoria recorded the second development lies in the western suburbs.
Investment in strongest YOY growth in online shopping,
Infrastructure with the number of online sales up by Most notably, the western roads upgrade
VIC: $14.2bn 22.2%. will transform 8 priority roads in the west
with many of these in the key industrial
FY ’19-20
E-commerce and tight suburbs of Truganina (Palmers road and
supply drives Melbourne’s Leakes road) and Laverton North
industrial market (Doherty’s road), and the West Gate
Tunnel project will deliver a vital
Set against the backdrop of an alternative to the West Gate Bridge,
increasingly tight industrial property providing a much needed second river
market, the growth in online shopping is crossing, quicker and safer journeys, and
creating significant demand for logistics remove thousands of trucks from
and warehousing space, and this is residential streets.
creating an appetite for speculative
Victorian Government’s Infrastructure Investment (GII)
(in $ billions)
16
14
12
10
8
6
4
2
0
Associate Director 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20(f) 2020-21(f) 2021-22(f) 2022-23(f)
2
MELBOURNE INDUSTRIAL JULY 2019 RESEARCH
Rents, Incentives & Outlook
Record take-up levels drive being met with 200,000 sq m of enquiry. (per sq m) Prime Secondary
decline in prime vacancy Rents $88 $71
2020 supply levels are likely to exceed YoY Δ Jul’19: +6.0% +5.2%
Melbourne’s industrial vacant space long term averages, driven by the recent
(5,000 sq m+) sits at 712,044 sq m. uplift in spec development. However, the Incentives 16.0% 14.6%
Vacancy has increased by 10% since the expectation is this stock will be absorbed
Rents
start of the year off the back of a 30% quickly given the demand for quality Outlook
increase in existing secondary stock warehousing space is expected to remain
levels, with this increase driven by the strong. land values rising by 100%. Rents have
north where secondary vacancy has also risen considerably (25%-30%) in the
increased by 145.1% since January. Rents rise from the increase supply starved Fringe. Rents are
in land values expected to grow further due to
Despite the rise in overall vacancy, the expectation of continued tight supply,
amount of prime grade vacant space has A surge in land values has placed upward sustained tenant demand and the need to
declined by 5.6% since January, with pressure on rents, in particular in the cover rising development costs related to
prime vacancy levels now among the south east where rents have risen by the need for automation and technology.
lowest recorded for half a decade. almost 10% since July 2018 in line with
Melbourne Industrial Vacancy Melbourne Industrial New Supply Melbourne Industrial Rents
Available Space by Grade New Industrial Developments by Precincts Net Face Rents by Grade excl. City Fringe
'000 sq m
700 90
$/ sq m
85
600
80
500
75
400
70
300
65
200
60
10YR Growth Rate
100 55 Prime: +18.9%
Secondary: +19.5%
0 50
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
PRIME SECONDARY
PRIME SECONDARY
Currently in the east there is no prime
vacant space, and vacancy in the south
east has declined by 16.4%. The decline Recent Leasing Activity Melbourne (YTD June 2019)
in prime vacancy can be linked to a
record 267,678 sq m of prime stock that Net Rent Area
Address Region Type Tenant
($/sq m) (sq m)
was absorbed over the last quarter, with
the bulk of this take-up emanating from 47 & 53 Foundation Rd,
the west and south east regions. West 78.0* 33,310 Spec Seacon Group
Truganina
Underlying tenant demand has been
driven by the E-commerce and food Maker Pl, Truganina West 75.0 30,885 Spec HB Commerce
manufacturing sectors. The brief uptick in
prime vacancy in Q1 2019 was caused 52 Dunmore Dr, Truganina West 80.0 20,946 Spec ADN
by the increase in spec stock presented
24 Logis Blvd, Dandenong South
to the market, which has since been 75.0* 15,797 Direct AFS Logistics
South East
taken up with most of this supply coming
from the west. And yet despite the high South
2 Beyer Rd, Braeside 90.0 9,146 Spec Gale Pacific
East
levels of spec activity, supply is lagging
in the west with 150,000 sq m of supply
3
Completed 2019 5,000—10,000 sq m
Under construction 10,000—20,000 sq m
Proposed 2019 & 2020 20,000 sq m+
Land values take off development, especially within development is due to land in the west,
Melbourne’s west where there is the which is approaching double what was
Industrial land values in Melbourne greatest capacity for expansion. The recorded in 2018 (87,390 sq m).
have increased considerably in the last strong demand for spec development is Demand in the west is such that more
12-24 months, driven by increases in reflected in short take-up periods with than half the spec space due to come
prices recorded in the south east and spec builds averaging 2 months on the online in the west is already under offer.
west. In the last 3 years, the value of 1- market following completion.
5 hectare lots in the south east has
grown by 10-15% YOY, while the value More than half (56%) of the industrial Land Values & Outlook
of 10+ hectare lots in the west has development due to land in Melbourne
soared in the last 12 months - in May in 2019 is speculative. In total 280,000 (per sq m) < 5,000 1-5 ha
2019, a land parcel in Truganina sold sq m of spec build is scheduled for
Values $440 $320
for $237/sq m; 12 months earlier land in 2019, which is more than double what YoY Δ Jul’19 +14% +20%
the same area sold for $102/sq m. The was recorded in 2018 (110,500 sq m).
surge in land values has been brought And 142,334 sq m of this spec
Outlook
upon by strong demand, low levels of
new supply and in turn rising rents,
underpinned by convenience of
location. Strong pre-leasing activity and Recent Land/Development Sales Activity Melbourne
a restricted short term supply pipeline
Price Area Sale
in the east and south east will ensure Address Region $ / sq m Purchaser
$ mil (sq m) Date
land values continue to rise.
875 Taylors Rd, South
80.0 413,000 194 Frasers Property Apr-19
Dandenong South East
Spec development drives
industrial activity 62-87 Horsburgh Dr &
720 Kororoit Creek Rd, West 54.7 209,300 261 ISPT Mar-19
Altona North
The rise in land values has had a flow-
210 Swann Dr,
on effect on rents, which coupled with West 11.5 45,310 254 Air Trunk May-19
Derrimut
a rise in demand for logistics and
1-4/678 Boundary Rd,
warehousing property spurred by the West 6.2 26,267 237 CRC Group May-19
Truganina
continued growth of E-commerce has
created an appetite for speculative
4
MELBOURNE INDUSTRIAL JULY 2019 RESEARCH
CY 2018 ($1.42 billion) and CY 2017
Current Yields & Outlook
($1.38 billion). The decline in sales Melbourne Industrial Yields
(in %) Prime Secondary volume however should not be Yields by Grade plus Risk Spread
interpreted as a reflection of waning
Yields 5.85 - 6.55 6.50 - 7.50 demand for industrial assets. Rather,
YoYΔ Jul’19: -30bps -30bps
strong tenant demand and rising rents
have made industrial assets increasingly
Outlook attractive to investors and set against a
backdrop of an already tight market this
Transaction volumes has made accessing prime grade
decline despite rising industrial properties increasingly
demand challenging.
In the first half of 2019 Melbourne’s Industrial the future of ‘new’
industrial sales volume ($10 million+) retail
totaled $615.2 million across 23
transactions. At the current rate, 2019 Indeed, the outlook for industrial
CY transaction volumes will fall property is very promising. Lured by the
marginally short of what was recorded in promise of strong long term returns, a
weight of capital is now looking to invest
in industrial assets as investors display
renewed confidence in an industrial Yield compression arc
Melbourne Industrial Sales ($10 mil+) property market buoyed by the growth nearing completion
Purchaser Profile—YTD Jun ‘19 of the E-commerce sector.
A climate of sustained tight supply of
Responding to the headwinds presented investment grade assets and strong
Private Investor
2% by the downturn in the retail sector, demand caused yields to compress
Developer
29%
A-REIT institutional investors are shifting the notably throughout the course of FY
16%
focus of their property portfolios away 2018, with current yields sitting at 30
from non-core retail assets towards year record lows.
industrial assets with an emphasis on
logistic and warehousing facilities. As In light of the recent strong uptick in
evidence of this broader structural land values, the primary driver of
change, as part of a retail divestment performance in the industrial property
strategy Stockland recently sold their market is likely to transition from yield
Owner Tooronga shopping centre in Glen Iris to compression to rental growth. While
Occupier Newmark Capital for $63 million, and in yields may well continue to tighten,
12% Offshore
29% late 2018 GPT purchased land at Shiny with the recent interest rate drop, the
Unlisted Fund/ Syndicate rate of compression is expected to
12% Drive in Truganina with a view to
speculatively developing 130,232 sq m slow. Indeed, already yields have
of warehouse space. remained unchanged over Q2 2019.
Recent Sales Activity Melbourne
Price Bldg Area Core Mkt WALE Sale
Address Region Vendor Purchaser
$ mil (sq m) Yield (%) (yrs) Date
30 Logistics Dr, Truganina West 69.6 48,769 5.3* 10.0 Goodman Group LOGOS Property Q2-19
182-198 Maidstone St,
West 41.2 37,906 7.6* 3.0 Abacus/ GAW Capital Cache Logistics/ ARA Q1-19
Altona
63-69 Pipe Rd, Laverton West 25.2 25,774 6.8 4.5 DEA Nominees Pty Ltd Harmony Property Q4-18
414-416 Somerville Rd,
West 22.0 24,343 6.5 2.9 ITI Timber Centennial Property Q4-18
Tottenham
5-9 Kitchen Rd, South
23.0 18,372 6.4 10.0 Shearform Centennial Property Q4-18
Dandenong South East
5
City Fringe North East
Vacancy Vacancy Vacancy
Prime: N/A* Prime: 70,332 sq m Prime: N/A*
Secondary: 17,404 sq m Secondary: 95,005 sq m Secondary: 89,644 sq m
Land Land Land
MELBOURNE INDUSTRIAL JULY 2019 RESEARCH
South East West
Vacancy Vacancy
Prime: 72,962 sq m Prime: 201,670 sq m
Secondary: 106,526 sq m Secondary: 58,501 sq m
Land Land
RESEARCH
Finn Trembath
Associate Director, Victoria
+61 3 9604 4608
Finn.Trembath@au.knightfrank.com
Kanwal Singh
Research Analyst, Victoria
+61 3 9604 4627
Kanwal.singh@au.knightfrank.com
Ben Burston
Partner, Head of Research &
Consulting
+61 2 9036 6756
Ben.Burston@au.knightfrank.com
INDUSTRIAL
Gab Pascuzzi
Partner, Head of Division
+61 3 9604 4649
Gab.Pascuzzi@au.knightfrank.com
Definitions:
Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market Adrian Garvey
income is divided by the adopted value/price which has been adjusted to account for property Director
specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure, +61 3 8545 8616
current vacancies, incentives, etc). Adrian.Garvey@au.knightfrank.com
Prime Grade: Asset with modern design, good condition & utility with an office component 10-30%.
Located in an established industrial precinct with good access. Joel Davy
Secondary Grade: Asset with an older design, in reasonable/poor condition, inferior to prime stock, Director
with an office component between 10-20%. +61 3 9604 4674
WALE: Weighted Average Lease Expiry. Joel.Davy@au.knightfrank.com
Methodology:
This analysis collects and tabulates data detailing vacancies, net face rents and yields (5,000 sq m+,
Marco Sandrin
sales of $3mil+) within industrial properties across all of the Melbourne Industrial Property Market.
The buildings are categorised into 1) Existing Buildings – existing buildings for lease. 2) Speculative Director
Buildings – buildings for lease which have been speculatively constructed and although have +61 3 9604 4731
reached practical completion, still remain vacant. 3) Spec. Under Construction – buildings for lease Marco.Sandrin@au.knightfrank.com
which are being speculatively constructed and will be available for occupation within 12 months.
Brent Glassford
Director
+61 3 9604 4683
Brent.Glassford@au.knightfrank.com
Knight Frank Research provides strategic advice, consultancy services and forecasting NATIONAL
Robert Salerno
to a wide range of clients worldwide including developers, investors, funding
Partner, Head of Industrial
organisations, corporate institutions and the public sector. All our clients recognise the +61 2 9761 1871
need for expert independent advice customised to their specific needs. Robert.Salerno@au.knightfrank.com
VALUATIONS & ADVISORY
Michael Schuh
Partner, Joint Managing Director
+61 3 9604 4726
Mschuh@vic.knightfrankval.com.au
VICTORIA
James Templeton
Partner, Managing Director
+61 3 9604 4724
James.Templeton@au.knightfrank.com
Sydney Industrial Melbourne Industrial Brisbane Industrial Active Capital View
Market Overview Market Overview Market Overview Outlook
January 2019 January 2019 March 2019 2019
Knight Frank Research Reports are available at KnightFrank.com.au/Research
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.
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