You know a property market has had it tough when zero per cent growth in property values is a good news story.

But after a seven-year free fall, it seems Perth industrial property values have hit the pavement and could be set to rise to the ranks of Melbourne and Sydney’s robust industrial markets. 

WA’s last resources boom left a rotten hangover for its capital city’s manufacturing and industrial businesses.

According to Savills’ latest Perth Industrial Briefing Notes, average net face rents in Perth-Core precinct, WA’s key industrial market, fell from $120 per square metre at the peak of the boom in 2012/13 to $90 per square metre in the most recent two quarters. 

Annual job advertisement growth within the industrial sector receded and as at June 2019, leasing activity had a five-year average of only 368,000 square metres, compared to 600,000 square metres in the 12 months to June 2012. 

What’s the culprit for a 25 per cent battering on average prime net face rents since 2012 and an exodus of industrial tenants? Well, there are a few.

From falling mining investment in WA came drooping business confidence, and stakeholders in the industry were left waiting (hoping) for investment to quickly pick up again. 

It didn’t. Annual mining investment in WA more than halved in the five years after 2012, from $50 billion to $20 billion in 2017.

Perth then suffered a catastrophic population growth slump, with a reduction in interstate arrivals and a mass departure of mining workers.

The Australian Bureau of Statistics shows WA’s population growth rate was hooking along at 9.58 per cent in 2012 before plummeting to 2.80 per cent in 2017.

Low returns dampened developer activity with supply dropping from around 250,000 sqm in 2014 to 50,000 sqm in 2018, its lowest level since 2010.

Meanwhile, across the Nullarbor, Melbourne and Sydney industrial property owners have been the envy of WA landlords, as a wave of east coast infrastructure projects and offshore investment helped line their pockets. 

Research group m3property recorded industrial land values in Sydney rising by up to 36.2 per cent in the year to June 30, 2019.

Since 2016, all prime Sydney sectors have experienced a rise in average net face rents, with the ciity’s key precinct in South Sydney seeing a total 20-per cent increase. 

Melbourne has shared similar spoils, with some sub-markets experiencing record-breaking industrial land value growth.

Sources on the ground have told us Laverton North saw a 70 per cent rise in land values in the year to 31 March 2019 and Altona boasted 68 per cent growth in the same period. 

Unlike Perth, there’s been a lot going on in Melbourne and Sydney in recent years to ramp up industrial property appeal. 

Overseas investors accounted for 35 per cent of all commercial property transactions in Australia in 2017 and 40 per cent in 2018. Both Sydney and Melbourne attracted the most interest. 

More than half of the government’s $5 billion asset recycling initiative were aimed at Melbourne and Sydney, and this funding dump set off a wave of new projects, added workers to warehouse floors and ramped up business confidence in the sector.

And both cities have had industrial supply shortages aiding the asset class’s popularity. 

But what if Perth could write an adaptation to Sydney and Melbourne’s industrial property stories? Well, there are murmurs the script is already being penned.

For only the second time in five years, prime industrial net face rents in Perth have been stable (i.e. haven’t dropped). 

Savills Research recorded zero per cent growth in average industrial values across all Perth precincts in the year to June 2019.

And in the previous period, the Perth-core precinct recorded its first average net face rent increase since 2012, with a 6 per cent rise. 

In April 2019, WA’s industrial property market hit its lowest vacancy rate since the mining boom at around 7.7 per cent.

Job advertisements, a key signal of future business activity, have seen 13.4 per cent growth in WA’s logistics sector in the 12 months to April 2019, the second highest in Australia behind Tasmania. 

And business sentiment is beginning to buoy. According to the Chamber of Commerce and Industry WA, the majority of businesses across construction, manufacturing, mining and real estate are expecting stronger conditions in the next year.

Yield compression is further proof of Perth’s resurging industrial property market.

According to Savills, market yields have tightened by 25 to 50 basis points in Core and East precincts, which together make up 80 per cent of total leasing volumes, while Perth’s North precinct saw market yields drop 63 basis points. 

The villain that caused Perth’s industrial property market downturn could very well be the hero that brings it out.

The Department of Mines, Industry Regulation and Safety recorded an estimated $113 billion worth of resource projects in WA’s pipeline as at March 2019. This is almost a $5 billion increase on their September 2018 estimate and is largely a result of price growth in LNG and iron ore.

BHP and FMG have invested $6.5 billion in the construction of new mines and Rio Tinto has green lighted its $2.6 billion Koodaideri iron ore mine investment. The awakening of WA’s mining sector has some commentators saying “mining boom” for the first time in years, and actually meaning it.

The government predicts private investment in the industrial sector will grow for the remainder of 2019 on the back of these projects and it’s hard to argue given the promising signs of a market resurgence. 

So far, Perth is cooking a similar recipe to Sydney and Melbourne. But should commercial property investors start heading west for industrial assets? Or wait for more ingredients to be added?

Time will tell but as history and the east coast show, it appears a good news story is being written for Perth. 

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