Rising industrial rents should encourage Australian investors: CBRE
A lack of new industrial space should encourage investment in speculative industrial developments as rents in Australia’s biggest cities continue to rise, according to new research by CBRE.
Sydney ranks the fifth most expensive city in the world to rent industrial space, with Brisbane and Perth also ranking among the top 10.
Adelaide and Melbourne are ranked 17th and 18th respectively. However, while rents in Adelaide decreased over the quarter, Melbourne recorded the biggest increase of any of the main Australian markets at 1.4%.
According to CBRE, the majority of new industrial space is already pre-leased before completion or is purpose-built for industrial tenants.
CBRE’s Global Industrial Rent Index rose by 0.5% quarter-on-quarter in the third quarter and by 1.7% year-on-year, driven primarily by strong occupier activity in Asia Pacific and the stabilisation of rents in Europe, the Middle East, Africa and the US.
According to Ray Torto, global chief economist at CBRE, global industrial rents now reflect 2006 levels primarily due to rental movements in Asia Pacific, which have now surpassed pre-global financial crisis levels.
Source: CBRE Research, exchange rate 30/09/2011
* Note: Tokyo rents are collected bi-annually in Q2 and Q4
“With occupier demand expected to remain robust across the majority of industrial markets, particularly in Asia Pacific and Latin America, we expect to see continued upward pressure on rents over 2012 and 2013, depending on the severity of the sovereign debt crisis,” Torto says.
Commenting on the current outlook for industrial development from a local perspective, CBRE Pacific regional director of industrial and logistics services Joshua Charles says “limited speculative development that has emerged in some markets has been rewarded with quick leasing transactions”.
This he says is due to the continuing expansion of third-party logistics occupiers and the growing storage and importing requirements of retailers in countries benefitting from high currency values.
“As a result the saying ‘if you build it they will come’ is starting to gain very real momentum. The slight growth in global rents, combined with the current space restrictions, has also led to a tightening in lease incentives and we expect this to continue moving forward,” he says.
However, according to Charles, landowners are holding off on speculative development due to the restrictions placed on them by lending institutions in some cases, while others have adopted a wait and see approach due to the current global economic volatility.
When converted into US dollars per square feet, Sydney ranks above Paris, Amsterdam and Hong Kong at $11 per square foot or $126 per square metre in local currency.
Tokyo remains the most expensive city to rent industrial followed by London, Singapore and Sao Paulo.
According to CBRE, Tokyo industrial rents remain at high levels on a global basis, due to the relocation and expansionary requirements of online retailers and third-party logistics operators in the aftermath of the Japan earthquake earlier this year.