The buyer profile in Perth’s industrial market has been changing over the past few years as its strong fundamentals attract demand from a wider range of purchasers looking to benefit from the growing market.

For many years the market has been dominated by high-net-worth privates, who have been able to build a significant portfolio without a great deal of competition from institutional investors and owner occupiers.

However more recently institutional investors have had an increased presence in Perth’s industrial market, with a focus on purchasing large development sites of around four to 10 hectares across the industrial landscape.

Institutional investors see Perth’s industrial market as a growing market with upside rental growth, hence why they are increasingly looking for buying opportunities. Knight Frank’s Australian Industrial Review Q2 found Perth prime industrial rents had risen by 27% over the year to the end of Q2, second only to Sydney at 39%. The report found there was ongoing demand for industrial property in the face of a chronic shortage of quality stock, which will underpin rental growth moving forward.

With competition for larger sites from institutions, high-net-worth private buyers now tend to be looking at smaller sites of one to five hectares for their developments, to accommodate, predominately, their existing tenants, relocating them from existing facilities to new sites. These buyers tend to have a more intimate relationship as a landlord with their tenants than other owners might, and do their best to keep good tenants within their portfolio by accommodating their needs as much as they can.

In addition to competing with institutional investors, these long-standing buyers in Perth’s industrial market – high-net-worth privates - have also been recently challenged by a significant number of owner occupiers who are “cashed up” and also looking for sites. This includes vacant land, as well as improved properties that can be upgraded.

Western Australia is unique in that many owner occupiers are involved in the mining sector. These owner-occupiers develop workshops and plant that they want to control rather than having to go to a landlord for permission to improve or upgrade the property.

For many in this market buying a site to own and occupy is a business decision, not a real estate decision, so they are prepared to pay higher rates.

We have recently seen more foreign companies, particularly Asian businesses, looking to buy and occupy sites for mining/oil and gas related businesses. We are currently dealing with three Chinese companies in this sector wanting to buy, not lease, improved industrial properties in Perth.

The growing competition amongst buyers in Perth’s industrial market won’t see high-net-worth privates leave the market as they still have a strong appetite to acquire sites. Rather, they will be more selective in their purchases and even look to the fringe areas for more affordable land.

Where will land values end up?

Ongoing limited supply of land in Perth’s industrial market in combination with increased buyer competition has pushed land rate significantly higher over recent years.

As a recent example of buyer competition driving land rates higher, a one-hectare site on Catalano Road in Canning Vale with a small warehouse, has been offered to the market. Private developers are showing serious in interest, however the owner occupiers – cashed up and prepared to pay more as a business decision - are offering some 20% more.

It will be interesting to see where land values are sitting in six to nine months, but our expectation is for continued growth, particularly if we see a predicted fall in interest rates.

In Perth’s prime industrial areas of Kewdale and Canning Vale, land rates are exceeding $500 per sqm, and in some cases $600 per sqm, exclusive of GST.

The outer areas in the north east and outer south are becoming more popular due to affordability, but prices there are also rising due to growing buyer demand. For example, Hazelmere to the north east was selling land at $250 per sqm, some 18 months ago, and now it is over $400 per sqm.

Knight Frank’s Australian Industrial Review Q2 found there had been growth in land values over Q2 in Perth’s industrial market, with larger lots in the Outer South showing the greatest increase, lifting $10 per sqm in Q2 and driving annual growth to 17.2%.

In the North, where submarkets were generally quiet, Wangara, Gnangara and Landsdale lifted the broader regional averages; for small lots the price improved $25 per sqm, while larger lots increased $10 per sqm.

In established precincts of Perth such as the North and East, a lack of land on market has meant little evidence of growth, but anecdotally we know there has been strong growth.

Development in the south and the resurgence in interest more broadly in areas adjacent to the Westport development in Kwinana has driven a sustained uptick for both small and larger lots. We expect the South to show continued strength as developments reach completion and stock is added to the region.

By Geoff Thomson - Director, Head of Industrial Logistics, Western Australia

Related Reading:

Strong demand but no supply in the 1,000 sqm to 2,500 sqm warehouse size range creates huge opportunity for developers - Knight Frank

Growth in Adelaide’s industrial market underpinned by an ongoing demand-supply gap - Knight Frank 

Industrial rents in Australia still have further to rise, according to Knight Frank’s Australian Horizon 2024 report