Gross take-up levels across Australia remain robust in Q3 2024 and weighted to leases and absorption of sublease space within existing warehouses. The logistics occupier market has changed over the course of this year.

Larger 3PL companies are waiting to secure a particular contract before they commit to new facilities. Additionally, many are still rightsizing distribution networks down from elevated levels maintained over the last four years, in line with eCommerce demand normalising. Increasing vacancy in key precincts is stalling face rental growth and creating downward pressure on effective rents.

As a result, national prime average weighted net face rents slowed to 0.9% quarter-on quarter in 3Q 2024. Annual growth remains very strong, recording 12.5% year-on-year. However, effective rents fell nationally by 1.8% in 3Q. However, investor confidence in long-term growth fundamentals resulted in AUD 2.24 billion in transaction volumes in the Australian industrial sector, in Q3 2024. This is the fourth consecutive quarter of volumes above the 10-year average.

National quarterly gross take-up has increased for consecutive quarters, reaching 864,000 sqm in Q3 2024 (9.8% q-o-q). Quarterly gross take-up totals exceeded the long-term 10-year quarterly average in all markets except Sydney. Supply remains robust with the Q3 2024 quarterly completion total of 863,700 sqm almost double the long-term 10-year quarterly average of 458,900 sqm. This brought rolling 12-month supply to 3.3 million sqm – well above the long-term 10-year average of 1.68 million (2014- 2023). National industrial quarterly transaction volumes decreased 35.3% q o-q in Q3 2024, reaching AUD 2.24 billion.

Sales activity fell in all markets. However, more broadly, industrial assets remain in demand with Q3 2024 transaction volumes well above the long-term 10-year quarterly average of AUD 1.70 billion. Outlook While inflation decreased to 2.8% in September 2024, within the Reserve Bank of Australia's target band of 2-3%, the Australian labour market remains strong, which is giving pause to any RBA decisions on lowering interest rates in 2024. Occupier demand is expected to guided by retail trade growth over the next 12 months with future goods contracts and inventory requirements a catalyst for space requirements. Given the uncertain occupier demand outlook, developers will continue to de-risk future supply pipelines through pre-lease commitments. Investor demand is expected to remain positive as we near the end of the yield decompression cycle in most markets.

Adelaide

The availability of large, modern, efficient warehouse space remains low, driving competitive tension between occupiers. As a result, prime grade rental growth increased across most precincts in Q3 2024, reflective of occupier demand outpacing supply in the Adelaide market. Gross take-up continued to increase quarter-on-quarter to 49,600 sqm in Q3 2024. Annual gross take-up totalled 128,600 sqm, below the 10-year average gross take-up (153,900 sqm). As broader economic volatility relating to interest rates and inflation stabilise in 2025, occupier demand is also expected to improve over the next 12 months. Yields were stable across all of Adelaide’s precincts in the prime and secondary grades.

On an annual basis, prime yields in all precincts softened 25 bps, except the Inner South and Outer South, which were stable. Four major developments (≥ 3,000 sqm) reached completion in Q3 2024, totalling 25,400 sqm. The slowing supply delivery is symptomatic of softening pre-lease demand over the past 24 months, with only two occupier moves this quarter being a commitment to a new build. Outlook It is expected that lower leveraged, high net worth private investors may continue to pursue counter-cyclical opportunities in the market. Private capital, with lower exposure to cash rate movement risk, may seek to capitalise on assets brought to market as divestors look to maximise asset yields.

Brisbane

JLL Research tracked 22 major lease deals in the Brisbane market (>3,000 sqm), five of which were negotiated above 10,000 sqm. Three pre-leases were recorded totalling 23,900 sqm. In Q3 2024, 14 new developments were completed, with a combined area of 227,500 sqm, which is above the long-term 10-year quarterly average of 93,400 sqm. Rental movement in the Brisbane industrial market remained positive over Q3 2024 but started to moderate following a period of elevated growth.

On average, prime net face rents increased 0.6% this quarter and 11.1% year-on-year to AUD 171 per sqm p.a. Prime yields were unchanged in all precincts this quarter, but some softening was recorded year-on-year. The prime yield spread in Southern and Northern precincts remained at 5.50% to 6.50%, the upper and lower have softened 50 bps each since Q3 2023. In the Trade Coast, the spread was recorded at 5.50% to 6.25%, the upper yield softened 50 bps and 25 bps on the lower end (year-on-year).

Outlook In Q4 2024, Brisbane's industrial market is expected to maintain stable gross take-up, despite economic challenges, with infrastructure spending and population growth potentially offsetting negative impacts. A significant supply pipeline, particularly in the Southern precinct, is set to deliver 144,800 sqm in Q4, contributing to a total of 705,900 sqm for the year. While many developments are approved for 2025-2026, construction challenges may cause delays.

Prime net face rents in the Southern precinct are forecast to reach AUD 152 per sqm p.a., a 7.5% year-on-year increase, with stable 2.5% annual growth projected from 2026 to 2028. Industrial yields are expected to remain at 6.00% through 2025, with potential tightening by the end of 2026, contingent on economic recovery. This recovery could drive rental growth and yield compression, potentially improving capital values in the medium term.

Perth

Average prime existing rents increased 3.6% in the East precinct over Q3 2024 and were up 3.8% in the North and South precincts. On an annual basis, rents increased 3.6% in the East precinct, 5.5% in the North precinct and 5.6% in the South precinct. Occupier demand in the Perth industrial and logistics market continued its upward trend over Q3 2024, with 100,300 sqm of gross take-up recorded across 11 major occupier moves (≥ 3,000 sqm).

Occupier activity this quarter was significantly above the two-year quarterly average of 55,900 sqm. Both prime and secondary yields recorded softening over Q3 2024. Prime yields softened 25 bps across all precincts to a midpoint of 6.50%. Secondary yields also softened 25 bps, to a midpoint of 7.13% across all precincts over the quarter. Five major developments (≥ 3,000 sqm) reached completion in Q3 2024, totalling 43,600 sqm. The past 12 months has seen 222,400 sqm of new supply added across 17 projects, significantly above the 10- year average of 96,000 sqm.

Outlook Over the medium to long term, investor demand for prime assets is expected to continue, particularly if an asset is supported by logistics, manufacturing or construction related tenants. Investment mandates from local and institutional buyers exist, however, have been hindered by a limited supply of leased, large-scale assets listed on market

Sydney

Sydney's gross take-up decreased over the quarter to 229,700 sqm over 21 major occupier moves (≥ 5,000 sqm) in Q3 2024, down 9.6% from Q2 2024. Occupier demand remains slightly below the 10-year quarterly average of 237,300 sqm. Sydney's share of national leasing volumes was 26.6% in Q3 2024, below Melbourne's 34.2% and 5.3 percentage points below Sydney's 10-year quarterly average proportion of 31.8%. In Q3 2024, 420,100 sqm of new stock was delivered, more than double the 10-year quarterly average completions. 93.5% of quarterly supply was delivered to the Outer Central West precinct.

Rolling annual completions reached 1,209,600 sqm. Increasing supply and moderating demand led to an increase in vacancy, with Sydney's headline vacancy (≥ 5,000 sqm) increasing 0.4 percentage points over the quarter to 3.9% in Q3 2024. Increased availability has constrained rental growth, with prime and secondary net face rent growth continuing to slow across Sydney in Q3 2024. Rental uplift has become limited to areas with low supply of prime grade stock. Outlook Sydney's industrial demand outlook remains mixed.

Flat retail trade and pressure on business margins is expected to continue to constrain expansionary occupier activity. Supply delivery is expected to remain elevated, with 688,200 sqm currently under construction and a further 4.2 million sqm in planning stages targeting completion over the next four years. Rental growth is expected to remain constrained, with landlords offering increasing incentives to secure tenants and mitigate vacancy risk. We expect the divergence between prime and secondary rents to continue to increase as tenants either capitalise on favourable terms and opt for super-prime, ESG-aligned facilities, or choose the cheapest available option amid challenging business conditions

Melbourne

Supply brought to market returned to long term averages this quarter after an inflated total in Q2. 147,019 sqm of stock was completed, 13.5% below the ten-year quarterly average (169,879 sqm). We anticipate Q4 will show increased levels similar to Q2 as delayed projects complete. Rents exhibited stability across all precincts and grades for the first time since the COVID pandemic and land values once again saw mixed growth rates. Notably, values of larger parcels are increasing at a faster rate than the 2,000-5,000 sqm size cohort, reflecting the relative scarcity of developable land in large parcels. Gross take-up returned to long term averages in Q3 2024 totaling 295,239 sqm, 5.2% above the long-term, 10-year quarterly average.

Melbourne's vacancy rate increased marginally to 3.12%. Yields were stable across all grades and precincts in Q3 2024. Outlook Macroeconomic conditions have put pressure on future proposed projects, in the form of rising construction and labour costs, as well as supply chain constraints. Therefore, we expect to see less speculative developments and a far greater rate of pre-commitments and purpose-built facilities to de-risk this uncertainty.

Strong immigration growth is particularly pertinent in the Victorian context, providing strong fundamentals for sustained gross take-up over the medium-term. Rental growth will moderate in the near to medium term due to increased supply and rising vacancies, but remain elevated compared to historical averages. The cost of debt and increasing long term bond rates have altered value perceptions in the industrial market, resulting in a trend of softening short-term yield forecasts.