APPD Market Report Article
MelbourneFebruary 28, 2022
Demand moderates but remains elevated
- Gross take-up has remained 57% above the 10-year quarterly average (221,600 sqm), despite decreasing 33% relative to 3Q21. Take up totalled 1.86 million sqm in 2021 exceeding the previous annual record set in 2019 (1.25 million sqm) by 49%.
- The West precinct accounted for the largest portion of take-up for the fourth consecutive quarter, totalling 146,600 sqm (42%), a figure 10 percentage points lower than the 10-year quarterly average take-up (52%). The remainder of take-up was accounted for by the North precinct, totalling 106,600 sqm (30.7%) and the South East precinct, which saw 94,500 sqm (27.2%) of gross take-up in 4Q21.
Strong demand drives record annual completion totals
- New stock delivery increased substantially in 4Q21 after widespread delays in 3Q21, as fifteen new projects were completed in 4Q21, ten of which were in the West precinct. A total of 270,700 sqm was added to the Melbourne industrial market in 4Q21, the highest level since 3Q20.
- Of the stock added in Q4, 87.8% was delivered with pre-commitment, exceeding the 10-year quarterly average of 82%. All stock delivered in the North was completed at a 100% absorption rate, while the West and South East precincts delivered speculative stock of 24,500 sqm and 5,500 sqm, respectively. Supply totalled 806,700 sqm in 2021 across all precincts, exceeding the previous record set in 2020.
Rents increase across all precincts and grades
- A high level of new stock delivery was coupled with elevated demand recording 0.5% q-o-q prime rental growth. Low vacancy in newer stock has been supporting strong rental increases in secondary stock, growing 5.2% q-o-q. Prime rental growth was led by the West precinct, which recorded 1.4% q-o-q, while the North led the secondary market at q-o-q growth of 5.9% q-o-q.
- Transaction volumes increased by 13% q-o-q to AUD 791 million, a figure more than double the 10-year quarterly average of AUD 373.2 million. Investment sales accounted for the largest portion of all transactions (48.7%), followed closely by new development sites (46.0%), while owner occupier sales made up the balance (5.3%).
Outlook: Elevated demand and record low yields to persist
- Elevated occupier demand is expected to remain throughout 2022, as many of the market-driving industries such as e-commerce and urban logistics, have thrived throughout the pandemic and will likely continue to do so in the near term. Long-term demand will continue to be driven by the combination of population growth and an affordable rental proposition.
- We expect yields to remain stable throughout 2022 following substantial compression over the past year. Record low bond rates further support sustained low yields in the Melbourne industrial market, likely keeping yields lower for longer than previous cycles. Monetary policy is not expected to change substantially in the near term, which will continue to support pricing for real assets.