The industrial vacancy rate across Australia’s major cities has fallen to a historic low of 2.24%, following occupier take up of space equating to the size of inner-city suburbs such as Glebe in Sydney or Carlton in Melbourne. CBRE Industrial Vacancy Report tracks net absorption across Australia for the very first time,” CBRE Head of Industrial & Logistics Research Sass J-Baleh.” 

Through the six-month period across Q4 2020 and Q1 2021, the net absorption of 4,000sqm-plus industrial assets in Sydney, Melbourne, Brisbane and Perth was 1,733,720sqm.

The net absorption figure combines the changes in total stock levels and vacant space and has been calculated for the first time by CBRE’s Industrial & Logistics and Research teams for the H1 2021 Industrial Vacancy Report.

Including Adelaide, the total vacancy rate across Australia’s five major cities is 2.24%, down from 2.60% in H2 2020. This is a historical low for the industrial and logistics sector.

Sydney has the lowest vacancy rate at 1.40%, halving following the net absorption of 738,325sqm of supply, while Melbourne’s vacancy rate has fallen by a full percentage point to 1.55% after net absorption of 653,365sqm.

“CBRE’s Industrial Vacancy Report tracks net absorption across Australia for the very first time,” CBRE Head of Industrial & Logistics Research Sass J-Baleh said.

“Demand for industrial and logistics space continues to rise with the national vacancy rate sitting well below 3%, underpinned by stable, long-term factors.

“That includes the structural shift to online retail and its role in creating greater activity among logistics and transport operators, the rise in the need for data centres, and the growth in the non-discretionary retail sector, which supports the expansion of food manufacturing and logistic operators, as well as the demand for cold storage space.

“More than 60% of the supply expected to be delivered in 2021 and 2022 has already been pre-committed, and therefore we expect vacancy rates to remain relatively low over the next 18 months.”

The vacancy rates in Brisbane and Perth are 2.90% and 4.30% respectively and – tracked for the first time – the figure in Adelaide stands at 3.20%, with net absorption data to follow in subsequent reports.

"The industrial and logistics market has bounced back with considerable vigour following the COVID-related challenges of 2020,” said Cameron Grier, Regional Director of CBRE Industrial & Logistics in Pacific.

“In 20 years, I have not witnessed such vast volumes of leasing enquiry. This has not been restricted to the major east coast markets, either, with South Australia and Western Australia also experiencing record leasing demand.

“In 2020, e-commerce experienced five years of growth in just 12 months, and now accounts for around 13% of all retail sales in Australia. There is still a long runway for growth in this area to catch other APAC countries, where the proportion of online sales typically ranges between 20% and 30%.

“This, coupled with the fundamental rethink of how occupiers deal with inventory levels, has created considerable momentum in the industrial and logistics sector in 2021.

“From an occupier’s point of view, the expected tightening of vacancy across all markets means that they now need to start thinking about their moves much earlier to ensure the continuity of their supply chains.”

The changing nature of retail has already shaped the demand for space, particularly in Melbourne, which accounted for 53% of the total absorption in Australia in Q1 2021, a quarter of which was by retailers.

“Demand from e-commerce will continue to be transformational,” Ms J-Baleh added.

“Take-up from this sector reached an all-time high last year with the absorption of 1,000,000sqm of logistics space, and we forecast an additional 2,500,000sqm will be required over the next five years to support the growth of online shopping in Australia.

“The current supply pipeline indicates a shortage of new space to meet that demand, so we expect capital and rental value uplift to continue.”

CITY OVERVIEWS

SYDNEY

Vacancy rate: 1.40%

Net absorption: 738,325sqm

Michael O’Neill, Managing Director, Western Sydney, Advisory & Transaction Services – Industrial & Logistics

“Strong consumer demand, massive infrastructure projects and accelerated e-commerce adoption have all contributed to a Q1 boom in the NSW industrial market.

“Vacancy remained under 2.2% across NSW during 2020, with some owners prepared to offer attractive deals on compromised assets in an uncertain economy. As market sentiment improved and discretionary spending increased, we witnessed a significant spike in tenant demand from a range of industries; most notably 3PLs that had been relatively quiet in 2018-2020.

“Rents have remained steady, however incentives have tightened by 2-4% and this trend is expected to continue as vacancy approaches 1%. There is also increasing evidence of owners and developers willing to be patient, waiting for longer leases on more attractive terms.

“Capital values and land rates continue to grow steadily in all markets. Owner occupier demand in the sub-$20m space is increasingly aggressive, driven by low interest rates, consumer trends, and market sentiment in favour of the industrial sector.

“Investment product and land opportunities are continuing to set benchmark rates as speculative and sub-leasing stock is being soaked up as quickly as it comes to market. This absorption is supporting traditional developers compete with data centre users that were especially active in 2019/2020.”

MELBOURNE

Vacancy rate: 1.55%

Net absorption: 653,365sqm

James Jorgensen, State Director, Victoria, Advisory & Transaction Services – Industrial & Logistics

“Victoria’s overall vacancy rate continues to fall, with demand for this asset class remaining at a high level as we move past the pandemic. Each precinct has vacancy rates of less than 2.5% as of H1 2021.

“As the market continued to tighten in the south east and east of Melbourne, the north and west precincts benefited from occupiers looking elsewhere, resulting in both recording more than 150,000sqm of net absorption over the first half of the year.

“Yields have continued to compress to record lows across all grades, as a result of the surge in capital seeking industrial and logistics assets in the state. This was rounded off by Blackstone’s Milestone Logistics sale of its 45-strong industrial portfolio to ESR in early April, with 54% of this $3.8 billion sale located in the Melbourne industrial market. The sale implied a flat 4% yield, and this could reset the benchmark for large pools of industrial assets across Australia.

“Melbourne’s industrial supply has historically been fuelled by speculative developments. However many of these projects were put on hold in 2020 as developers waited to see the impact of the pandemic, resulting in an imbalance between supply and demand levels. This, in turn, has led to effective rental growth throughout the region, which was most pronounced in the south east precinct.

“As more speculative development is brought to the market while we emerge from the pandemic, we expect vacancy rates to rise slightly as the market adjusts. Healthy enquiry levels will bring fast absorption of this space and the Melbourne industrial market is expected to remain robust throughout 2021.”

BRISBANE

Vacancy rate: 2.90%

Net absorption: 192,626sqm

Peter Turnbull, State Director, Queensland, Advisory & Transactions Services – Industrial & Logistics

“Leasing activity in Queensland has been stable across the first half of the year, with the majority of supply being taken up by e-commerce and transport and logistics groups.

“After most of the speculative supply was put on hold during the pandemic, we are starting to see these developments resurface, particularly through the western corridor. With this shortage of supply coming to the market, and increased occupier demand, we saw in excess of 190,000sqm of net absorption in the Brisbane industrial market over the past six months.

“Investment interest has also been very strong for the industrial sector over the past year. This has translated into significant investment activity within south-east Queensland. Investment volumes in Q1 2021 reached $216 million across nine transactions, up from $186 million a year earlier as investors look for long-tenanted occupiers with an extended WALE.

“This highlights the continued depth of institutional investment demand within the Brisbane industrial market. As a result of recent transaction activity, average super prime yields have continued to tighten, down by 25 basis points in Q1 2021 to average 5.0%. The weight of capital is likely to continue to put downward pressure on yields in the short-term, particularly for larger assets where institutional investors can get scale.”

PERTH

Vacancy rate: 4.30%

Net absorption: 149,104sqm

Jarrad Grierson, State Director, Western Australia, Advisory & Transactions Services – Industrial & Logistics

“The WA industrial market has bounced back strongly, off the back of continued confidence. This rebound has been underpinned by the market confidence in a strong mining and resource sector, particularly in iron ore and gold. Commodity pricing remains at historically high levels, which has resulted in continued infrastructure spending and the potential for new projects.

“In addition to mining-related activity, we have experienced a spike in demand from a range of industry types, most notably tenants associated with both e-commerce of general warehousing sectors. The spike in tenant demand from these groups has been the result of tenant confidence in the medium-to-long term outlook and favourable opportunities for a flight to quality.

“Continued net absorption has resulted in decreasing supply levels, particularly for prime stock, which has placed upward pressure on rents and a decrease in market incentives. Demand for speculative developments also continues to grow, as investors look to capitalise on industrial assets in the Perth market.

“Yields continue to tighten, and demand coupled with limited supply will result in capital values and land values increasing. In addition to continued investor demand, the owner-occupier market is strong across the board in all precincts.”

ADELAIDE

Vacancy rate: 3.20%

Jordan Kies, State Director, South Australia, Advisory & Transactions Services – Industrial & Logistics

“Accelerated industrial and logistics demand within Adelaide over the past 12 months has largely been fuelled by South Australia’s strong food and beverage, defence, mining, high-tech manufacturing and health sectors.

“This buoyant business confidence has encouraged tenant expansion and amalgamation, with flight-to-quality also being a major component of the investment decision-making process. Additional evidence suggests that there was heightened penetration of new entrants in the Adelaide industrial market over this same period, further demonstrating the increased demand for this asset class.

“The majority of industrial land across metropolitan Adelaide has now become fully absorbed after extended periods on the market pre-COVID, with many wondering where future industrial development land will materialise to meet the elevated demand levels.

“With a diversified economic base, South Australia is well placed and truly on the national radar from both a leasing and investment perspective. All sub-regions have been major beneficiaries in their own right, with increased land sales activity and now very low supply, driving up land prices.

“Strong leasing demand with low vacancy rates is creating more D&C activity, good tenant retention and rental growth prospects, while there is also increased investment appetite and a continued sharpening of yields.”

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