Significant occupier demand continues over the quarter

• Business conditions have remained buoyant over the quarter ahead of the holiday season. In turn, occupier activity (>3,000 sqm) over 4Q22 was positive, reaching 316,000 sqm of gross take-up, which is significantly above the 10-year quarterly average of 122,600 sqm.
• Occupants within the Transport, Postal & Warehousing industries accounted for the most significant amount of total take-up (48%), followed by occupiers in Manufacturing (35%), Retail Trade (10%) and Wholesale Trade (7%) industries.

Construction costs continue to cause delays to projects

• Quarterly completions (77,500 sqm) have continued to lag over 4Q22 with only seven projects reaching completion, of which four were pre-committed. Continuously increasing construction costs and labour shortages have instigated major delays to the delivery of projects, considering 205,600 sqm of stock that was previously anticipated to complete over 4Q22.
• Of the projects that completed, the majority were delivered within the Southern precinct (57.7%), followed by the Northern (14.5%) and Trade Coast (27.8%) precincts. The 619,600 sqm of stock under construction is anticipated to be delivered over the course of 2023, however, unpredictable delays to projects may have an effect on this figure going forward.

A slowdown in the investment market is anticipated

• Growth to prime rents has continued across all precincts. Quarterly growth in the Southern precinct reached 4.3%. Average prime net face rents increased by 2.8% q-o-q in the Northern precinct, and 4.4% q-o-q in the Trade Coast. The drivers of this growth continues to be instigated by strong occupier demand and limited available stock.
• Investors are mindful of increasing interest rates, which evidently has seen yields continue to soften as an imbalance between buyer and vendor expectations comes to fruition. Softening of 13 basis points (bps) was recorded across all three precincts, resulting in prime mid-point yields to reach 5.01%. Secondary yields have begun to soften across Northern and Southern precincts over 4Q22.

Outlook: Projects may become non-viable due to inflationary pressures

• It is anticipated that occupier demand will decline in the near term as operating conditions become affected by a potential macroeconomic slowdown instigated by an expected decrease to discretionary spending and RBA monetary tightening. 
• Anecdotally, occupiers have been pushing back on high rental rates which, along with an anticipated slowdown in occupier demand in the near term, is likely going to slow the rate of rental growth throughout 2023.