APPD Market Report Article
AdelaideFebruary 28, 2023
Annabel McFarlane, Senior Director - Research, Australia
Occupier activity rebounds despite economic uncertainty
- Leasing activity rebounded in 4Q22, reaching about 43,800 sqm, the highest quarterly take-up recorded over the last 12 months. This was 16% above the 10-year quarterly take up average of about 37,700 sqm. The majority of occupier activity was recorded in the Inner West/East precinct, accounting for 85% of the quarterly total.
- The Transport, Postal & Warehousing Industry accounted for 90% of all quarterly take-up. There were four major occupier moves (>3,000 sqm) recorded over the quarter. The largest occupier move was by FedEx committing to a 23,100 sqm facility at 14-32 Transport Avenue, Netley.
Delivery of stock far exceeds quarterly averages
- There were five project completions in 4Q22, totalling about 81,900 sqm. This delivery of stock was well above the 10-year quarterly average of 19,950 sqm. The majority of the quarterly supply was delivered in the Inner West/East precinct (60%), followed by the North West precinct (32%) and the Outer North precinct (8%). 80% of the completed supply was pre-committed.
- Additional industrial supply of about 57,700 sqm is currently under construction across nine projects, with expected completions around early 2023. The projects have an overall pre-commitment rate of 51%.
Rental growth decelerates with most precincts remaining stable
- Average prime net face rents increased over the quarter (0.7% q-o-q), decelerating from growth recorded in 3Q22. However, quarterly growth remains higher than the 10-year average of 0.4% q-o-q. Blended prime annual rental growth across all precincts reached 11.7%. Average secondary net face rents increased 0.4% over the quarter across all industrial precincts, bringing annual growth to 8.2%.
- Investment activity was low in 4Q22, reflecting a lack of assets brought to market over the last three months of 2022. However, investor demand remains positive for modern, well-leased assets. Annual investment in 2022 reached AUD 639.9 million.
Outlook: Yield decompression and rental growth continue
- Occupier demand is expected to remain steady over the short term. However, it is likely that leasing activity will generally be targeting smaller, modern and efficient warehouse space. Supply chain issues and elevated construction costs are expected to continue, further delaying speculative supply delivery. Low vacancy is expected to continue driving rental growth over the medium term.
- Yields are expected to continue softening as they decompress from historical lows. Investor activity is expected to be opportunistic as buyer and vendor expectations slowly realign from the strong investment environment recorded over the last 24 months.