APPD Market Report Article
AdelaideMay 31, 2022
Occupier demand tapered in 1Q22
- Leasing activity has slowed, with a combination of delayed business decision-making due to the COVID-19 Omicron variant surge in late 2021, and a lack of modern, efficient warehouse space available for occupiers, dampening gross take-up volumes. There were two major occupier moves (>3,000 sqm) recorded, totalling 19,000 sqm.
- While quarterly activity from major occupiers was subdued, there was positive demand from occupiers looking for smaller space. JLL operatives reported strong enquiry numbers and improved lease commitments from occupiers in the <3,000 sqm space cohort.
The supply pipeline is increasing
- There were four completions recorded over the first three months of 2022, totalling 19,500 sqm. Speculative development remains low with all space in the completed projects this quarter pre-committed.
- An additional 97,600 sqm of industrial supply currently under construction is expected to complete in 2022. As a result, Adelaide industrial annual supply will exceed 100,000 sqm for three consecutive years – the first time this will have occurred since 2005-2007.
Low availability of modern space driving prime rents
- Occupier demand is outpacing supply, resulting in the rapid decrease in modern, efficient industrial space for lease. This competitive tension is increasing rents significantly. Average prime existing rents increased between 2.1% to 8.9% quarter-on-quarter across all precincts.
- Investor demand continues to increase. With limited assets available through on-market sales campaigns, off-market approaches to owners are growing. This weight of capital competing for a limited asset pool has resulted in further compression of yields in 1Q22. Prime midpoint yields in all precincts tightened by between 25-50 basis points this quarter.
Outlook: Investment demand expected to compress yields further
- Occupier demand, currently outpacing supply, is expected to encourage developers to pursue speculative development activity in 2022. The growth of e-commerce and the current challenges in global supply chains is expected to underpin growth in the retailing, transport and logistics, and manufacturing sectors over the medium term.
- Investment demand from both institutional, private and syndicated capital is expected to place further downward pressures on yields in 2022. It is expected that institutional capital will look to projects currently under construction or nearing construction to satisfy its portfolio weightings to the Adelaide industrial market.