JLL research shows Logistics & Industrial occupier activity continues to be weighted towards the Eastern Seaboard, with the key markets of Sydney, Melbourne and Brisbane accounting for 90% of take-up in 2Q 2021.

Gross take-up of industrial space exceeded 1.18 million sqm during the second quarter of 2021 – smashing the previous record of 1.15 million sqm that was recorded in the first quarter of this year. Take-up in the last 12 months has reached 3.82 million sqm, significantly ahead of the 10-year average of 2.4 million sqm per annum.  

For the fourth consecutive quarter, the Melbourne market accounted for the highest proportion of leasing activity, as gross take-up totaled 445,700 sqm – equivalent to 38% of the national total and more than double its long-term average. Occupier activity was strong across a diverse range of industry sectors including, Manufacturing and Transport, Postal & Warehousing sectors.

JLL’s Head of Industrial - Victoria, Matt Ellis said, “Most occupiers in the Melbourne market are in continuous competition for space, with several groups often working through negotiations for any available assets simultaneously. Despite the increasingly tight availability of existing space, we are still seeing significant deal flow across the market.

“We have seen developers respond to this dynamic emphatically, with over 300,000 sqm of new developments commenced in Melbourne over the last three months. We expect that this stock will be gradually absorbed as it is constructed, with relatively little to be available to tenants at completion,” said Mr Ellis.

Activity in the Sydney market was also substantially higher than historic benchmarks, with a total of 443,400 sqm of gross take-up – equivalent to 37% of the national total and also more than double the long-term average for that market.

JLL’s Head of Industrial – New South Wales, Peter Blade said “After seeing so many retail groups expand in Sydney last year, the third-party logistics providers (3PLs) have been the driver of the occupier market in 2021. These groups are having to expand rapidly to meet the requirements of their growing client base, with even lease renewals often being negotiated to include an expansion of existing footprints.”

JLL’s Senior Director of Industrial Research, Annabel McFarlane said, “We have long discussed the potential for limited product availability flowing through to market rents. In Melbourne’s West we recorded quarterly rental growth of 4.7%, while a strong result occurred in Sydney’s Inner West precinct (+3.4%). Tight vacancy and lack of prime options has resulted in strong rental growth in secondary stock in some precincts this quarter notably in Melbourne’s West (+10%) and South East (+3.0%).”

Developers have responded to the unprecedented level of occupier activity and the new pre-lease requirements coming to market.

Ms McFarlane said, “The June quarter marked the highest volume of new development commencements that JLL Research has ever recorded, with over 800,000 sqm across 33 new logistics & industrial projects starting construction over the last three months. These projects have seen healthy levels of occupier interest and secured a pre-commitment rate above 50%.”

“While the development pipeline is significantly de-risked, a number of developers are willing to undertake speculative development to have product available to capture upcoming occupier demand at higher rental levels,” said Ms McFarlane.