Melbourne industrial development shifts westJune 24, 2013 / By
Since 2008, 50% of Melbourne’s major industrial development has occurred in the West. Consequently, the balance of industrial stock in Melbourne has shifted from the South East towards the West. In 2007, the proportion of industrial stock in the West was 36%, compared to 38% in the South East. In 2012, the West had increased its share by 4% to account for 40% of stock, with a corresponding decrease in the South East to 35%.
One factor that partly explains the stronger growth in the West is the differential in rents and land values between the precincts. Both are significantly cheaper in the West compared to the South East – average rents in the West offer a 10% discount to the South East, while average land values are at a 40% discount (for a 2,000 sqm lot). These discounts are structural; they have persisted more or less for the last 20 years.
Another factor stimulating greater development in the West has been strong population growth west of the city. Melbourne’s West contains several of the fastest growing suburbs in Victoria. Industrial locations in the West are well placed to service the strong population growth centres of Melton, Werribee, Hoppers Crossing and right out to more regional locations including Geelong and Ballarat.
Melbourne’s M80 ring road has also served to make Melbourne’s West more accessible from the North and South East of Melbourne. Improvements in road infrastructure in the last decade has made the West a more attractive proposition, given its cheaper rents and land values. The West’s access to the Port of Melbourne also gives it a geographical advantage.
The short-term supply outlook indicates more new stock will be developed in the West than in any other precinct. Jones Lang LaSalle is tracking 313,000 sqm of development in the West, compared to 209,000 sqm in the South East (based on the current development pipeline in 2013 and 2014). Furthermore, the most active industrial developers in Melbourne in the past few years have large developable land holdings in the West.
The shift of development stock to the West has implications for occupiers and investors alike. Occupiers are increasingly considering the West for future operations. For investors looking for large modern warehouse and distribution facilities to invest in, they will increasingly find more of this product is located in the West.
In the medium term, population growth west of Melbourne will continue to support the rotation toward greater development in the West. However, there remains plentiful land further north of Melbourne and serviced land has more recently become available in the South East, particularly in South Dandenong. This may see an increased share of development activity in the South East, especially if new infrastructure such as a second container shipping port at Hastings goes ahead. A convergence of rents or land values would certainly help to stimulate this outcome.
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