APPD Market Report Article
PerthFebruary 28, 2023
Annabel McFarlane, Senior Director - Research, Australia
Occupier demand slows in 4Q22
- Occupier demand in the Perth market decreased over 4Q22, with 30,600 sqm of gross take-up recorded across four major occupier moves (≥3,000 sqm). Quarterly gross take-up was the weakest recorded since 1Q22.
- Over the last 12 months, 228,600 sqm of gross take-up was recorded in the Perth industrial market, above the 10-year average of 205,000 sqm. Demand was led by the Transport, Postal & Warehousing (26.1%), Manufacturing (20.1%) and Wholesale Trade (13.2%) sectors. Pre-lease activity accounted for 36.0% of gross take-up in 2022.
Perth industrial supply pipeline is limited
- No major developments (≥3,000 sqm) reached completion in 4Q22. Nevertheless, 78,800 sqm of new supply across six projects was added over the last 12 months. There are six projects totalling 71,300 sqm currently under construction and expected to be completed by 4Q23.
- The supply pipeline is limited beyond projects already underway, with only one project with DA approval. New land holdings to the North and South of Perth may lead to an increase in pre-lease and design & construction activity in these precincts.
Rents increase across all Perth industrial precincts
- Average prime existing net rents increased across all three precincts in 4Q22, marking the third consecutive quarterly increase in rents. Rents in the South precinct increased by 4.6% over the quarter, while the East and North precincts also recorded increases of 3.9% and 3.5% respectively. Annually, rental growth was the strongest on record across all three precincts.
- Rising cost of debt pressures has slowed investor demand, leading to yield decompression for industrial and logistics assets. Prime yields decompressed by 25 basis points across all three precincts in 4Q22 to a midpoint of 5.25%.
Outlook: Rental growth is expected to maintain upward momentum
- Rental growth is expected to remain positive in the medium term, driven by strong demand and scarcity in supply. Nevertheless, with global economic conditions set to deteriorate in 2023, growth expectations are set to be softer.
- Occupier demand is anticipated to remain elevated as long as broader economic conditions remain positive. The e-commerce sector is expected to continue to lead sectoral demand, driven by strong ongoing consumer spending tailwinds.