APPD Market Report Article
MelbourneSeptember 4, 2023
Annabel McFarlane, Head of Strategic Research, Australia
Demand rebounds above historical average
- Gross take-up returned to elevated levels in the quarter, totalling 274,600 sqm. Total take-up increased 30% relative to the previous quarter, and was 9.8% above the ten-year quarterly average (250,200 sqm).
- Demand was led by the Transport, Postal & Warehousing sector, accounting for 56% (154,960 sqm) of take-up, followed by the Retail Trade sector, comprising 24% (65,960 sqm).
New supply expands despite development difficulties
- New stock delivery expanded in the quarter, following a subdued first quarter. Completions totalled 163,600 sqm, increasing 192% q-o-q, a figure 10.1% above the ten-year quarterly average (148,500 sqm). New supply remains restricted by limited land availability and high costs of capital.
- In the quarter, the majority of new stock was delivered in the West precinct, where 92,000 sqm completed across two projects, accounting for 47% of total completions. The South East precinct followed, with four projects completing, delivering 69,980 sqm (36%). The North precinct accounted for the smallest portion of total completions (16%), with 31,060 sqm completing across two projects.
Transactions surge as yields soften
- Latent stock delivery and sustained low vacancy continued to place upward pressure on rents. Prime rents grew across all tracked precincts in the quarter, with the West precinct experiencing the most significant growth at 5.3% q-o-q. Secondary rents similarly experienced strong growth, with the South East leading the market with 5.2% quarterly growth.
- Transaction volumes more than doubled relative to the previous quarter, totalling AUD 744.4 million, a level (198%) above the ten-year quarterly average (AUD 249.6 million). Sales transacted for investment purposes accounted for 77% of total transactions, while sales for development purposes accounted for 19%.
Outlook: Slowing but robust near- to medium-term rent growth
- Demand from occupiers remained strong in the Melbourne industrial market, as low vacancy and low gross occupancy costs relative to other domestic markets made Melbourne an attractive prospect for industrial occupiers. Easing supply chain delays and existing structural tailwinds are likely to support confidence and construction going forward.
- Rent growth is expected to remain elevated over the near- to medium-term, due to persisting low vacancy and sustained occupier demand for large facilities.