APPD Market Report Article

Melbourne

December 1, 2021

8.3%

AUD 100.7

Rents
Rising

Melbourne again leads national occupier activity in 3Q21

  • Occupier demand has increased upon the previous quarter’s total (445,700 sqm) as Melbourne records its second highest quarter of take-up. The West precinct accounted for the vast majority of activity, totalling 378,000 sqm of gross take-up (73%).
  • The transport, postal & warehousing (36.1%) and retail trade (30.2%) industries accounted for 66.3% of gross take-up in 3Q21. This is slightly higher than the industries respective 10-year quarterly percentage of take-up average, transport, postal and warehousing (34.7%) and retail trade (19.8%).

Completions subdued amidst construction industry shutdowns

  • COVID-19 induced shutdowns of the construction industry have dampened new completion volumes in the quarter, with many projects pushed into 4Q21. Three projects completed in 3Q21, one in each of the North, South East and West precincts, adding a total of 107,800 sqm to the market.
  • Of the 107,800 sqm added in 3Q21, 94.4% was delivered with pre-commitment, 12.9% higher than the 10-year average (81.5%). All stock delivered in the North and West was completed at a 100% absorption rate, while the South East delivered the speculative stock of 6,000 sqm.

Rental growth accelerates

  • Rental growth accelerated across all our tracked markets in 3Q21, buoyed by the high demand and lack of supply in prime and secondary grade markets. Rental growth was led by the West precinct, which recorded 6.8% quarterly prime rental growth, to AUD 89 per sqm per annum and 6.6% quarterly secondary rental growth, to AUD 81 per sqm per month.
  • Transaction volumes trended down from the previous quarter, declining by 22% to AUD 697.8 million. However, this is still 93% higher than the 10-year quarterly average of AUD 362.5 million. Transactions were weighted heavily to investment sales, amounting to 78.5% of all transactions. The remaining transactions belonged to new development sales (19.9%) and owner occupier investments (1.5%).

Outlook: Market momentum to continue into 2022

  • Heightened occupier demand is expected to continue throughout 2022, as key industries and market drivers, including e-commerce, urban logistics and inventory management have shown to be largely unaffected by short-term uncertainty during the pandemic. The key drivers of Melbourne’s long-term demand, population growth and an affordable rental proposition remain and will likely support activity.
  • As various capital sources continue to seek exposure to the Melbourne industrial market, we expect yield compression to continue through the rest of 2021. Current forecasts indicate that monetary policy is unlikely to change significantly over the medium term, which will continue to support pricing for real assets.

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

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