Perth’s industrial market was marked by stability in the fourth quarter of 2023, with prime rents moving up only slightly and land prices showing positive signs, according to the latest research from Knight Frank.

However, Knight Frank’s Australian Industrial Review Q4 found prime industrial rents in Perth rose by the highest rate of all the major Australian cities in Q4 2023 at 1.8%, However, the rate of growth has clearly slowed, with annual growth of 4.2% to Q4, compared to 9.55% recorded in the 12 months to the end of Q3 2023.

Adelaide had the next highest prime rental growth over Q4 at 1.77%, followed by Brisbane (0.7%), Melbourne (0.45%) and Sydney (0%).

Annually prime industrial rents rose by 4.23% in Perth, which was the lowest growth rate of capital cities.

Perth industrial secondary assets saw rental growth of 3.87% y/y, which was also notably lower than the 12.73% y/y in the previous quarter.

Knight Frank Head of industrial Logistics WA Geoff Thomson said demand in Perth’s industrial market has remained, but the market was moving into a new phase of normalisation following a period of exceptionally strong growth.

“Rental growth is slowing across the board, but it remains generally positive,” he said.

“These rental growth numbers have been dragged down by low prime rental growth in the North and East, and little rental growth for secondary markets in these regions.

“Rental uplifts have come from manufacturing-specific assets in preferred areas, while warehousing rents have remained stable.”

Mr Thomson added that supply, especially of development land, is restricted, leading to a general market slow down as developers wait for the right scheme at the right price, whilst tight vacancy rates keep tenants in-situ.

“Of the limited market activity, much is driven by owner occupiers,” he said.

“Land values for both small and medium-sized lots increased in Q4, although market activity remained limited, so the transactional evidence pool was small.”

The Knight Frank research found that generally, land prices increased in Perth’s industrial market over Q4 averaged $10 to 15 per square metre, although there were some higher increases with $25 per square metre achieved in some sub-markets of the East (<5,000 sqm) and Outer South (1-5ha) precincts.  

Knight Frank Partner, Research and Consulting Dr Tony McGough said land in Perth’s South continues to perform well with both inner and outer sub-markets proving to be the strongest among the broader Perth industrial sector.

“While Inner South showed no movement for smaller lots this quarter, larger lots lifted $10 per square metre,” he said.

“The Outer South performed even more strongly, with the small lot average lifting $17 per square metre and the medium lot average increasing by $15 per square metre.

“Henderson and Naval Base were the standouts for both small and larger lots in Outer South.”

Mr Thomson said continuing interest in the South was driving growth and the beginning of yield tightening, while land prices were continuing to increase.

“The market stability of Q3 continued into Q4, with financial markets largely taking a wait-and-see approach as the year drew to a close,” he said.

“This contributed to a stability in yields broadly, though the Outer-South prime average tightened.

“This is reflective of the growth in interest and demand for the southern corridor, particularly in areas proximate to the Westport development in Kwinana.

The Knight Frank research found there had been only a slight outward movement (+25bps) in the ower range of the super prime yield, lifting the overall average super prime yield 12bps to 5.88% but with this trading range narrowing to 5.75 to 6.0%.

The Outer South prime actually moved lower in 25bps to 6.5%, as did the upper, from 7.5% to 7.25%, moving this precinct’s average down 25 bps, from 7.13% to 6.88%.