Industrial rental growth accelerated across prime and secondary assets in most markets nationally during the third quarter.

JLL Research data shows that prime rents increased by an average of 3.1% this quarter – the highest level recorded in a single quarter since 2004 -  while secondary rents increased by an average of 3.7% - the highest single quarter increase ever recorded.

JLL’s Head of Industrial & Logistics Agency - Australia, Peter Blade said, “The level of competition that we are seeing on almost every asset that comes to market is giving landlords the edge in lease negotiations. Existing and immediately available assets are currently demanding a premium, which has caused significant uplift in rents over the last quarter.”

Availability of assets has become a key challenge for industrial occupiers across most key markets in Australia, exacerbated by delays in construction due to COVID-19 outbreaks in NSW and Victoria.

JLL Senior Director of Logistics & Industrial Research - Australia, Annabel McFarlane said, “After we recorded the highest single-quarter volume of new industrial development commencements in 2Q21, the impacts of the COVID outbreaks and construction industry shutdowns in Sydney and Melbourne were significant. Our Research data shows that commencements in 3Q21 were the lowest recorded since 2005, with only slightly over 150,000 sqm of new construction started, and 50% of that space has already been leased. Looking 9-12 months down the line, this is going to place pressure on occupiers trying to find new space in an already extremely tight market.”

The construction shutdowns also had an impact on projects that were already underway, with many development completions delayed.

Mr Blade said, “There have been a number of industrial developers who have faced difficulties with their development projects being delayed because of construction shutdowns. At a national level, there has been more than 260,000 sqm of new space that was due to be delivered this quarter that has been pushed out. While much of that space will likely come online during Q4, that may be too close to the Christmas rush for some occupiers, particularly major retailers who are trying to re-shape their supply chains to deal with elevated online activity.”

“In the current market environment, the major issue that is facing industrial occupiers who want to or need to expand is simply finding any space that will suit their needs. Our negotiations often result in a number of different occupiers attempting to secure the limited available space that exists in industrial markets across the country,” said Mr Blade.

Gross take-up of logistics & industrial space exceeded 1.1 million sqm nationally for just the third time in history, and for the third time this year, following on from back-to-back record quarters of take-up in the first half of the year.

Activity was dominated by the Melbourne and Sydney markets, which accounted for 46% and 33% of the national total, respectively, despite spending most or all the quarter in lockdown.

Ms McFarlane said, “The level of activity that we have seen, and continue to see, in the Australian Logistics and Industrial occupier market is unprecedented. Prior to this year it was almost unheard of to see more than 1 million sqm leased in a single quarter but having done that in every quarter so far this year we are already 23% (650,000 sqm of take-up) ahead of the all-time annual record with three months to go in 2021.”

“Demand was sourced from a range of sectors this quarter, in addition to the third-party logistics providers and retailers who are riding the eCommerce tailwind. The manufacturing sector continues to be a significant player in the industrial occupier market and has accounted for 20% of the take-up we have recorded YTD. There has been a particularly notable volume of activity in the metal and construction product manufacturing sector, which is being driven by the boom in construction activity we are seeing around the country,” said Ms McFarlane.

To request further information with regards to the research mentioned in this article please contact either Annabel McFarlane or Peter Blade via the contact details below.