Industrial vacancy trends down in Brisbane for second consecutive quarter: Knight Frank

Industrial vacancy trends down in Brisbane for second consecutive quarter: Knight Frank
Industrial vacancy trends down in Brisbane for second consecutive quarter: Knight Frank

Industrial vacancy rates in Brisbane fell by 1.8 percent over the past quarter, the second consecutive fall, the latest research report by Knight Frank shows.

Despite vacancy remaining above average, the total vacancy is beginning to respond to a lull in backfill space and a reduction in new sub-lease space, according to Knight Frank’s head of Industrial, Australia, Greg Russell.

“Take-up of vacant industrial space was strong over the majority of 2015, following a slow start in the first quarter of the year. Enquiry levels have remained patchy, with solid periods of enquiry followed by quieter times in the market,” said Russell. 

“Demand has continued to arise from transport and 3PL users, as well as those companies related to the building industry.”

According to the Brisbane Industrial Vacancy Research report for February, the level of available space within the Brisbane Industrial market decreased by 11,818 square metres over the past quarter to sit at 640,996 square metres as at January. (The report monitors available space 3,000 square metres + only).

“In tandem with the reduction in total vacancy, the time on the market has reduced slightly across the available space to currently average 15.1 months.”

The level of prime space fell by 8.8 percent over the quarter to 313,511 square metres, with absorption of prime space dominating the quarter. 

In contrast, the secondary space available increased by six per cent to total 327,485 square metres over the final quarter of 2015.

All available industrial space is split relatively evenly between prime (49 percent) and secondary (51 percent), says the report.

Warehouse-style buildings made 81 percent of the total available space, said Russell. “In line with the reduced expenditure in the resource sector, manufacturing and metal fabrication demand has remained subdued. This has impacted demand for vacant space. 

“Manufacturing stock has a current time on the market of 20.2 months, in comparison with warehouse stock, which averages 13.5 months.” 

Three precincts recorded significant falls in vacancy in the final quarter of 2015, added Jennelle Wilson, Knight Frank’s senior director, Research, Queensland. 

“TradeCoast was down 18 percent; the Greater North was down 18.9 perCent; while the South West was down 21.5 percent. Knight Frank recorded a total reduction in available space of 62,978 square metres,” said Wilson.

“The other three precincts balanced out these figures, recording increases with the North up 8.9 percent; South up 18 percent and South East up by 12.8 percent – meaning that the overall reduction in vacancy was only modest.

But despite the total vacancy falling over the past two quarters, the level is still at historically high levels and the market continues to favour tenants.

“Market rents are showing a softening trend with discounting of advertised face rents and incentives firmly in the market,” said Wilson. 

“Increasingly, landlords are accepting that rents on new leases will be lower than the passing rent from existing leases which had fixed reviews.”

“This has extended to making strong offers to sitting tenants, who had been considering relocation, in order to maintain an income stream over the asset and avoid vacancy.”

The forecast new supply for 2016 appears to be in line with that of 2015, with a number of the ‘proposed’ projects to potentially be deferred into 2017, she added.

“Investment market conditions have remained solid for prime assets, with yields sub-seven per cent for modern, long weighted average lease expiry opportunities. Although, yields for assets with exposure to vacancy have appeared to plateau. 

“These high prices achievable for new, long-leased assets has continued to spur both speculative development and low pre-commitmente rents, which will create further backfill space – although not at the pace that was seen in early 2015. 

“While the vacancy appears to be trending down and take-up has remained strong, the market rents remain soft,” concluded Wilson.

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