APPD Market Report Article

Melbourne

May 26, 2024

Annabel McFarlane, Head of Strategic Research, Australia

19.5%

AUD 151

Growth
Slowing

Leasing activity slows

  • Gross take-up decreased by 52.5% q-o-q to 151,700 sqm in the quarter. This quarterly figure was 42.1% below the ten-year quarterly average. Despite continued demand for industrial space, leasing activity was restricted by limited availability. The West precinct accounted for the largest portion of quarterly leasing activity, with 66.6% of Melbourne’s gross take-up.
  • The manufacturing sector accounted for the largest portion of quarterly take-up in the Melbourne market (49.9%). This was followed by the transport, postal and warehousing sector (31.4%), then electricity, gas, water & waste services (14.5%).

Supply levels drop

  • Supply decreased over the quarter, with 83,700 sqm of completions brought to market, 45.8% below the ten-year quarterly average. Pre-commitment levels have improved over the quarter, with 62.9% of projects leased at practical completion. Although supply was low in 1Q24, it is expected that completions over the remainder of 2024 will be robust. 
  • The largest portion of quarterly supply for the Melbourne market was delivered in the West precinct (74.1%). This was followed by the City Fringe precinct, which accounted for 16.7% and then the North precinct for the remaining 9.2%.

Rent growth continues to be driven by low vacancy

  • With limited leasing availability persisting in the quarter, prime rents increased significantly across all precincts, with the strongest quarterly prime rent growth recorded in the West precinct (7.8% q-o-q). Incentives have increased across all precincts. Secondary rents were stable across all precincts.
  • Melbourne industrial transaction volume totalled AUD 845.4 million over the quarter. Two major land sales accounted for 57.9% of this total. The Q1 quarterly volume was 107.6% above the ten-year quarterly average.

Outlook: Rents to stabilise through the remainder of the year

  • Rents are expected to stabilise for the remainder of 2024, with a forecast of minimal growth. Of the 933,200 sqm under construction in Melbourne, 48.8% is pre-committed with delivery in 2024. Incentives are expected to rise as uncommitted supply reaches completion over the year, as well as occupier demand being impacted by ongoing economic challenges.
  • Yields are forecast to soften further through 2024 before commencing the next compression cycle in 2025. Given this, capital values are expected to decrease moderately over the balance of 2024 before recovering in 2025. 

Note: Melbourne Logistics & Industrial refers to Melbourne's industrial market (all grades).

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