Surging demand for smaller industrial land parcels is driving value growth in Perth’s industrial market, according to the latest research from Knight Frank.

Knight Frank’s Australian Industrial Review Q1 2024 found Perth recorded further growth in land values in Q1, rising by a further 3% to 5% in most precincts and by up to 11% y/y for both small sub-5,000sq m lots and medium sized 1-5ha lots. 

This growth stands in contrast to the Eastern Seaboard where land values have stabilised and, in some cases, fallen in recent quarters. 

The Outer South has seen particularly strong growth over the past year, with prices for small and medium lots up by 27% and 25% respectively.

Knight Frank Head of Industrial Logistics Geoff Thomson said demand for land has accelerated in Perth, with land prices increasing rapidly across all markets as a consequence. 

“Demand has overwhelmingly been driven by owner-occupiers,” he said.

“The strong demand in the Outer South reinforces the growth of this region leveraging off the Westport development and its continuing focus as a major growth area. 

“The Inner South is also seeing above average growth with owner occupiers judging the market to offer value and amenity. 

“Meanwhile, in established areas where land supply is constrained there have been fewer transactions, but we have still seen a willingness to increase rates paid.”

The Knight Frank research found that the established industrial areas of Bassendean and Belmont, in Perth’s East, had seen prices rise by $75 and $100 respectively. 

On average in the East, small lots have experienced growth of 9.3% y/y, while larger lots are up by a lower 3.8%. In the North, prices for small lots are up by 5.9% y/y while larger lots have increased by 9.4%. 

Rents rise in the East and Outer South

Perth industrial rents saw further upward movement in Q1, with average prime rents rising by 1.8% q/q off the back of increases in the East and Outer South.

Knight Frank Partner, Research and Consulting, Dr Tony McGough said annual rental growth remains solid for both prime and secondary markets, at 4.1% and 3.9% y/y respectively.

“In the East, growth was underpinned by a $5/sqm lift in both manufacturing and warehousing stock rents, lifting annual growth to 5.2%,” he said. “The other prime rental uplifts were recorded for warehousing and manufacturing in the Outer South, both up $5/sqm, resulting in a 10.2% per annum increase.

Yields tighten in the South

After a period of broad-based yield widening, Perth has seen average prime yields edge inward in Q1 off the back of yields tightening in the Outer South. 

Following a 25bp tightening in Q4 2023, average prime yields in the Outer South tightened once again in Q1, recording a further 25 basis point reduction to stand at 6.63%. 

This reflects the growing strength of the precinct with investors recognising the long-term growth potential on offer in the southern corridor, and as a result it now trades at a yield level closer to the more established precincts.

Secondary yields also tightened marginally off the back of the Inner South shifting down 25 bps to 6.75%. Average prime yields now stand at 6.38% and average secondary yields at 7.03%.