Melbourne's north industrial market continues to improve: Colliers

Melbourne’s north has seen strong take up of space over the last year on the back of growing tenant demand, particularly from food, logistics and packaging businesses, according to Colliers International's latest report.

Properties within the 5,000-10,000 square metre range have seen the largest take-up in the year to date, with more than 54,000 square metres absorbed - nearly doubling since last year.

Vacancy has declined considerably by approximately 45% over the 12 months to August 2016 to be around 236,706 square metres, with much of this vacant space attributed to lease expiries.

While part of this is due to the lack of speculative development and more focus has been on prelease commitments, much of the absorption was from several deals being made in the 5,000 square metre plus range in the first half of 2016, which includes 141 National Boulevard, Campbellfield being leased to food distributor Bio-Living, and 27 Transport Drive in the Somerton Logistics Centre.

In addition, the latter half of 2015 saw quite a few large deals being made for properties above 10,000 square metres, with the most notable being the 40,000 square metre commitment by Murray Goulburn to the Austrak property.

Businesses continue to be drawn to the north’s robust road infrastructure attributes which include the Hume Highway as a corridor for the transport of freight between Sydney and Melbourne, immediate access to major arterials, close proximity to the Melbourne airport, and transport links to the Port of Melbourne.

Activity in the north’s industrial precinct over the next few years will be driven by rising opportunities for growth, through impending infrastructure development strategies and the strength of key industries such as Food and Fibre, and Transport and Logistics.

Significant transport and road infrastructure projects include the widening of the Tullamarine freeway which is currently underway, the new intermodal freight hub in Somerton (Austrak/DP World Australia) and upgrades to roads (including O’Hearns Road, Yan Yean Road and Bolton Street).

These improvements should provide opportunities for business growth and generate demand in all sectors of the industrial property market.

A low cost business environment and attractive rental rates have continued to spur tenant interest - average net face rents for prime grade assets are currently at $78 per square metre, while secondary grade assets lease for $58 per square metre net.

There has also been a notable increase in tenant enquiry from food groups, particularly within the local government area of Hume which has seen a comparatively higher number of leases within this sector than in 2015.

As Australia’s largest producer and exporter of food and fibre, this sector accounts for more than half of Victoria’s total goods exports. The food and fibre industry should continue to strengthen on the back of growing global interest and increased strategic opportunities as one of the state government’s six priority sectors within the Future Industries Fund, which should drive the demand for industrial space and help absorb impending vacancy from automotive manufacturing facility closures.

Investment activity has also continued to ramp up, evident in major deals being made over the year. One such deal was the sale of the 11,717 square metre Campbellfield property on 36-52 National Boulevard by Property Link, located on 36-52 National Boulevard, which sold to a local owner occupier (also a food group) for $9.6 million, in a Colliers International negotiated deal.

While land values have remained steady in the $240-275 per square metre range for Prime Grade assets over the last six months, the demand for land (from a mix of developers and owner occupiers) in close proximity to the Hume Freeway has continued to grow, predominantly in Epping and bordering areas.

Moreover, current land supply has also been tightening around Epping precinct with limited serviced blocks available at MAB’s Alliance Business Park and McMullin’s Northpoint.

The lack of land supply and fewer opportunities for developments should translate to solid growth in land values over the next 12-24 months.

The underlying demand saw average Prime Grade yields compressing by approximately 40 basis points over the last year to be in the 6.5-7.5% range and we believe there is further scope for compression, particularly for well-located properties, which are in limited supply.