Across a backdrop of extremely limited land supply in Melbourne’s South East Cranbourne is emerging as an industrial powerhouse offering compelling supply/demand characteristics for occupiers and investors alike as leasing transaction levels continue to exceed supply in Dandenong South.

Colliers analysis shows there are 315 hectares (ha) of remaining industrial land left in Dandenong South and Cranbourne West. If you consider just Dandenong South, this figure is closer to 172 ha. From a demand/absorption perspective, take-up has averaged approximately 100 ha over the past two years, which is increasing as leasing and speculative volumes continue to push to record levels. Based on these figures, this gives the market 1.72 years of supply in Dandenong South and 3.15 years in the broader core South East market which includes Cranbourne. Colliers suspect the 100 ha of take-up will increase to closer to 130 ha given speculative volumes have increased year-on-year by over 100% – or 2.42 years of total future supply. In addition, 55% or 171 ha of the remaining 315 ha within the core South Eastern market is owned by Salta – separating them from the supply equation is an important consideration from a supply/demand perspective meaning the remaining 45% results in approximately 1.09 years of supply for the core South East market based on the above-mentioned average take-up levels.

A large part of the constraints that exist are due to the fact that 90% of the 315 ha of zoned land available in the core South East (Dandenong, Keysborough, Hallam and Cranbourne West) is controlled by three developers (Salta, Frasers and ESR) with development and delivery of new buildings unable to match the above average leasing volumes that the market has experienced over the past two years.  

This is reflected in the speculative development pipeline in 2022 with the entire 202,603 sqm (21 tenancies) being absorbed earlier than expected, driving the vacancy rate down to record levels. At the time of writing, vacancy is positioned at 0.0024% representing just three vacancies > 3,000 sqm out of a total of 1,230 buildings – making South East Melbourne one of the tightest major metro industrial markets in Australia and compares to the national average of 1.0%

Critically, moving forward, Dandenong South, the traditional ‘engine room of the South East’ only has two developers capable of delivering immediate institutional grade industrial facilities with Cranbourne poised to become a net beneficiary. With the precinct being the only market in the South East offering zoned greenfield industrial land ready for development, it provides occupiers and investors leasing and acquisition opportunities of various sizes in a proven location.

James Stott director industrial & logistics from Colliers continues, the supply constraints being experienced in the South East has seen a significant focus on precincts like Cranbourne, resulting in rapidly increasing land values as buyers compete for the few remaining sites. In 2021, 2 ha parcels of land in the precinct were being traded in the low $200’s/sqm compared to recent results for similar parcels in the area approaching $600/sqm (values tripling in 18 months).

The growing demand for the area is reflected by a number of transactions as sophisticated buyers look to acquire the few remaining parcels in the precinct outside of the two major holdings that ESR (Greenlink Business Park 79 ha) and Salta (129 ha – 690 Westernport Highway) already control.

One of these transactions was a forward-funded development opportunity marketed by Colliers & CBRE on behalf of Campbell Constructions which was acquired by Cabot Properties earlier this year. The 11,057sqm facility is expected to be delivered in Q2 2023

Sally Box Managing Director of Cabot, said, We see Cranbourne West as an extension of the Dandenong South market and expect the precinct to exhibit the characteristics of all our top industrial submarkets over time. This is reflected by the class A, drive around, single tenant warehouse we are building.

In July, Colliers & CBRE (Agents: James Stott, Gordon Code & Lachlan Ferguson, James Jorgensen) also marketed a multi-tenancy forward fund opportunity (for Campbell Constructions) that was snapped up by Brookfield properties who are rapidly beefing up their industrial presence nationally and looking to capitalise on the tight vacancy market in Melbourne’s South East. The development at 5 & 15 Gwen Road, Cranbourne West offers three tenancies with a combined GLA of 20,967 sqm and an expected market realisation in excess of $55 million upon practical completion scheduled for Q3 2023.

Gordon Code National Director Colliers said ‘5-15 Gwen Road, Cranbourne West presented a rare opportunity to secure a high quality asset in a market affected by a scarcity of investment-grade industrial properties. The estate (ultimately owned by Brookfield) will be developed in partnership with specialist industrial builder, Campbell Constructions and is well placed to capitalise on strong leasing demand levels and a corresponding insufficient supply pipeline of new buildings in the south east.

In addition to the major transactions noted above, occupiers are now increasingly looking for opportunities in Cranbourne West with a flight to value trend emerging based on rapidly rising occupancy costs in Dandenong and Keysborough which is pushing bigger occupier mandates to the precinct.

This is reflected in two speculatively developed 7,460 sqm facilities being delivered in Q4 2022 by Stockland already being under offer despite neither property being advertised on the open market.

Amanda Elgammal regional asset manager for Stockland continues “Melbourne’s South East is one of the most land constrained industrial markets on the eastern seaboard. As Dandenong is progressively built out, Cranbourne West is one of the last remaining options to service the growth in this corridor. We believe this market has strong long term rental growth prospects and Stockland is pleased to be increasing its exposure in this market with the addition of Cranbourne West Distribution Centre due for completion late 2022.”

Other groups looking to capitalise on this leasing demand include ESR who is pressing ahead with a 30,000 sqm speculative developed facility at its ESR Green Link Estate in Cranbourne West. This brand-new master-planned industrial park includes a range of sustainability initiatives to prioritise the wellbeing of both people and place. The new facility follows a major 37,000 sqm commitment to logistics giant CEVA secured earlier this year.

Simon Sayers General Manager Victoria, commented, ESR Australia is delighted to have commenced works on our Green Link Industrial Estate. After firstly, securing CEVA on a strong pre-lease and having started our first 30,000 speculative development, we have received an exceptional level of enquiry from top-tier customers who recognises the numerous benefits provided at our estate. At ESR Green Link Industrial Estate, we are setting the standard for the future of our sites with a value creation focus incorporating features that best address our customer's needs and will deliver long-term value.

This opinion piece by James Stott director industrial & logistics Colliers and Gordon Code National Director Colliers.