Low industrial vacancy rate in Melbourne encouraging speculative developments: Knight Frank

Strong uptake of industrial space in Melbourne is encouraging more speculative projects in the western and south-eastern parts of the market, according to the latest Melbourne industrial market analysis by Knight Frank.

During the first three months of 2012 the amount of industrial space available for rent in the city fell by nearly 60,000 square metres (16%) to 298,000 square metres, a new low for total available space since Knight Frank began compiling data on the market in April 2009.

A year ago there was about 530,000 square metres of industrial space available for rent across the city, equating to a drop of 47%.

Knight Frank notes that take-up was stronger in the first quarter of 2012 after slowing in the fourth quarter of 2011.

All regions monitored experienced a drop in available space as take-up continues to outstrip supply. While available space has steadily diminished, market asking rentals have only begun to respond to the tighter market, with modest increases in the second half of 2011.

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Rents average around $72 per square metre, with the CBD fringe (essentially Port Melbourne) the most expensive at $95 per square metre and the north (suburbs like Preston, Broadmeadows, Epping and Tullamarine on the north-eastern side of the Calder Freeway) the cheapest market at $66 per square metre.

There was just under 17,000 square metres of speculative development completed over the first three months of the year with another 23,000 square metres currently under construction.

Big property developers like Australand and Dexus are aggressively targeting the West and South East with new speculative developments in the pipeline.

The west comprises industrial areas on the southern side of the Calder Freeway including Altona, Laverton, Sunshine, Derrimut, Brooklyn, Ravenhall and Deer Park.

The south east comprises industrial space in Moorabbin, Springvale, Braeside, Dandenong South, Hallam, Lyndhurst, Carrum Downs, Cranbourne and Pakenham.

Dexus is currently building a 15,600 square metre office warehouse within its industrial estate at 25 Distribution Drive, Laverton North in Melbourne’s west, despite this precinct has the greatest level of available industrial space at April 2012, 60% of which is prime accommodation.

Another speculative development by Australand – a 10,000-square-metre warehouse – has been completed, in Truganina, also in the west precinct.

According to Knight Frank there is only 112,000 square metres of available space in the west of Melbourne, down from 252,000 over the past 12 months, the biggest drop of all industrial precincts over this period.

Over the quarter, 31,000 square metres of space was snapped up in the North, making it the most active leasing market for 2012 to date.

James Templeton, joint managing director of industrial at Knight Frank, say the Melbourne industrial market is experiencing record low vacancy across all sectors.

“Both prime and secondary buildings in key locations are leasing well,” he says.

According to Templeton, plans by Australand and Dexus to expand in the western and south-eastern market will be assisted by improved levels of enquiry, with a number of major retailers now looking at pre-leasing.

“There is also increased activity in the land and building package area, with a number of owner-occupiers taking advantage of the competitive deals being offered,” he adds.






Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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