Rents and yields in Adelaide’s industrial market have stabilised, while land values continue to rise on the back of the demand/supply imbalance, according to the latest research from Knight Frank.

Knight Frank’s Australian Industrial Review Q1 2024 found prime rents remained flat in Q1 this year, with net face rents experiencing no material rise during the quarter as leasing transactions remained limited. 

On an annual basis, however, average prime rents are 8.9% higher than 12 months ago, with the growth rate sitting just behind Melbourne, which had the highest annual rental growth at 9.2%. Sydney (7.7%) was next after Adelaide, followed by Brisbane (6.2%) and Perth (4.7%).

Knight Frank Partner, Research and Consulting, Dr Tony McGough said recent growth in rents had been fuelled by high demand for high quality space, of which there was a shortage.

“This has pushed tenants to pay more for better facilities,” he said.

“In the 12 months to April 2024, the outer precincts had the most significant growth in prime rents, with the North increasing by 11.1% over the year, and the South by 12.2%.”

While annual rental growth was strong, it has plateaued in Q1, with vacancy up 16% over the quarter for properties of 5,000sq m-plus.

This is a result of additional stock continuing to come to market, as well as low take-up levels for the third consecutive quarter, with only 13,590sq m leased in Q1.

There is 187,542sq m of forecasted development for Adelaide’s industrial market due by end of 2026, with the northern precincts accounting for 64% of this space, solidifying its position as the dominant development region.

Knight Frank Partner, Head of Investment Sales in Adelaide Chet Al said land values in Adelaide’s industrial market continued to rise with strong demand and low supply.

“Over the first quarter of this year, land values for lots of greater than 5,000sq m grew in all precincts except the Inner South,” he said.

“The biggest increases were in the Outer South, with a 10.5% rise over Q1 and the Inner North, with a 13.7% rise.

“Similarly, values of medium-sized lots – 1 t- 5 hectares - increased in all precincts except the Inner South.

“The strongest growth was in the Inner West, with 18.8% growth over the quarter, the Outer South with 15.4% growth and the Outer North at 11.4%.”

The Knight Frank research found industrial yields over Q1 remained steady, with both average prime (6.33%) and secondary (7.16%) yields seeing no material change. 

“While yields are still softer than 12 months ago, a pause in the softening trend is reflective of the overall investment proposition compared to other asset classes and interstate industrial markets,” said Mr Al.

“Overall, the first quarter saw low activity to start the year with little change in market dynamics and limited transaction activity.

“However, market sentiment indicates continued demand for quality space and from owner occupiers.”

Asset sales above $5 million in Adelaide’s industrial market experienced a significant decline in Q1 this year, with the number of sales falling from 16 transactions ($217.08 million) in Q4 2023 to 9 transactions ($93.26 million) in Q1 2024.

Year-on-year data shows sales were 11.15% less in Q1 2024 compared to Q1 2023 ($104.96 million).