Low vacancy and supply delays continue to limit immediately available options in some industrial precincts, leading to strong quarterly face rental growth says JLL Director, Logistics & Industrial – VIC, Lachlan Ferguson.
The South-East Melbourne industrial markets recorded the strongest quarterly prime net face rental growth in 2Q24 of all JLL tracked markets nationally. Rents grew by 8.8% q-q bringing yearly growth to +27.6% y-y.
JLL’s Director, Logistics & Industrial – VIC, Lachlan Ferguson said Melbourne’s South East is being driven by a shortage of available space in the industrial property market.
“Currently, the vacancy rate stands at 1.57% across the Eastern and South-Eastern markets, however, a substantial portion, 0.83% of the total vacancy, can be attributed to non-functional, secondary grade facilities.
“With supply chains normalising and consumer spending dropping, occupiers are now reassessing their future inventory levels and industrial footprints. With most reverting to a 'just in time' model, occupier demand has shifted from existing vacancies to future speculative or prelease facilities that will allow them to reduce their footprints and take advantage of the operational efficiencies a new build offers,” he said.
Mr Ferguson said that low vacancy rates and a lack of future supply indicate that the South East market will continue to experience rental growth in the coming years.
“Only 86,326 sqm of spec development will be delivered for the rest of 2024, and we anticipate only 123,324 sqm will be delivered in 2025. With an average take-up of nearly 175,000 sqm per annum in spec developments (average over the last three years), this will lead to a significant undersupply, underpinning the argument for robust rental growth for the years to come,” he said.
Mr Ferguson said facilities within the size range of 4000 sqm to 10,000 sqm emerged as the most sought-after in 2023.
“Out of 59 leasing transactions completed in 2023, 35 were for facilities within this size range, highlighting the strong demand in this segment.
“With the lack of vacancy and low development pipeline, we encourage South-East developers to continue to speculatively develop their land to service the sustained occupier demand,” he said.
JLL’s Head of Strategic Research – Australia, Annabel McFarlane, said Melbourne’s South East had recorded the lowest precinct vacancy in Melbourne.
“However, granular analysis shows that vacancy is variable across suburbs. Vacancy is at 0% in Braeside and Scoresby, Keysborough currently sits at 1.86% vacancy and Dandenong which accounts for 35% of the stock is at 2.39%,” Ms McFarlane said.
More JLL Industrial reading:
Mixed results for logistics in 2Q24 - JLL | The Industrialist
Adelaide is running out of room for industries - JLL | The Industrialist
Car importers drive demand for short-term warehouse space - JLL | The Industrialist