Gross State Product (GSP) weighted prime net face rents increased by 4.2% quarter-on-quarter nationally over 3Q23, substantially above average quarterly growth, following similarly strong rental growth of 4.5% q-q in 2Q23 and 4.4% q-q in 1Q23. 

Rental growth in 2023 year-to-date has reached 13.6% over the first three quarters. This puts 2023 on track to be the second-highest calendar year for rental growth in the 34 years that JLL has been monitoring the market. The only year to surpass this is 2022, which peaked at 22.9% year-on-year, marking the strongest annual growth since JLL began tracking the market in 1989.

Eastern Seaboard markets Net face rental growth by precinct and grade q-q % change

JLL's gross take-up in 3Q 2023 (533,320 sqm) was below the quarterly average and lower than the heightened levels recorded in 2Q23 (819,100 sqm). It also fell short of the 15-year quarterly average of 606,100 sqm.

National supply picked up to record 454,740 sqm in completions in 3Q23 following two previous quarters of below average totals. 

Sydney precincts recorded the steepest rises in prime net face rents over the quarter;

• South Sydney ($344 per sqm +8.2% q-q, +27.4% y-y), 
• Outer North West ($205 per sqm, +8.6% q-q, +21.0% y-y), 
• Outer South West ($204 pre sqm, +9.0% q-q, +23.3% y-y) 

Secondary assets net face rents also grew strongly in these Sydney precincts, ranging between + 6.6% q-q in Outer North West and +7.7% q-q in South Sydney. 

Brisbane’s Northern and Trade Coast precincts also recorded strong prime and secondary growth for the quarter. In contrast, rental growth in Brisbane’s Southern precinct slowed. Net Face prime rents and growth as follows;

• Northern ($158 per sqm +6.8% q-q, +10.7% y-y), 
• Southern ($138 per sqm, +2.6% q-q, +13.4% y-y), 
• Trade Coast ($166 pre sqm, +9.1% q-q, +24.2% y-y) 

Rental growth in Melbourne's North (+6.8% quarter-over-quarter, 27.2% year-over-year) and South East (5.9% quarter-over-quarter, 16.7% year-over-year) continues to show strength. Conversely, in Melbourne's West, prime asset rental growth has moderated. Adelaide's prime market performed well, with most precincts experiencing quarterly rental increases. These ranged from 3.4% quarter-over-quarter in Inner West/East to 11.2% quarter-over-quarter growth in Outer North. Rental growth in Perth and Adelaide's secondary market has stalled.

JLL’s Head of Strategic Research - (Australia) Annabel McFarlane said, ‘Strong rental growth is reflective of ongoing still tight market conditions in most Eastern Seaboard precincts. Demand is moderating as rising inflation challenges downstream customer demand, and as many businesses return to the ‘just in time’ inventory management model reassessing occupancy requirements now that supply chains are normalizing. However, to date the supply response has been slow to respond to strong rental growth and low availabilities.” 

Relief for occupiers as incentives start to ease from record lows

JLL Research has recorded average industrial incentives at new record lows over the last 12 months. However, as demand moderates and supply picks up landlords and developers are increasing incentives to secure tenants

Eastern Seaboard markets average incentives by grade and market % 5 year lease

Notable changes in average incentive levels include the following:

• The most significant change in average incentives was recorded in Melbourne’s North where incentives reached a record low of 8% in 1Q23 and in 3Q23 have increased to 20%
• Average incentives are in single digits across all Sydney precincts though have increased very slightly in some precincts. 
• Incentives in Brisbane precincts remain well below historical average and range between 7% (Southern) and 8% (Trade Coast & Northern) depending on precinct.

JLL’s Head of Industrial & Logistics - (Australia) Peter Blade said, “We have seen enquiry levels moderate and some push back on steep rental increases. Those groups that require expansion space are increasingly looking for short term leases in nearby premises and pushing longer term decisions down the road, responding to an uncertain business environment. Sublease is increasing in key markets as opportunistic occupiers tap into positive rental reversion potential for underutilized space. Whilst not all these options are great, typically the offered sublease rentals under-cuts the rental levels available for direct leased space.

“Tenants now have more choice and landlords and developers need to compete harder to secure leases. Developers are opting to secure preleases at an early point in the building construction period. We expect this trend to continue,” said Mr Blade. 

JLL’s Head of Strategic Research - (Australia) Annabel McFarlane said, “We expect conditions to ease for tenants over the last months of 2023 and 2024, rental growth rates to moderate and incentives to cycle up. We are tracking 2.5 million sqm of stock under construction nationally. A new record for quarterly supply, 1.15 million sqm, is expected to complete over the last three months of 2023. Precommitment levels are building but still relatively low at 40%, meaning a return to a more balanced market for 2024,” said Ms McFarlane.