Positive demand for new industrial properties in Melbourne's south and east: Colliers

Positive demand for new industrial properties in Melbourne's south and east: Colliers
Positive demand for new industrial properties in Melbourne's south and east: Colliers

Melbourne’s south and outer east have been characterised by a lack of speculative supply in all sectors of the industrial property market coupled with high levels of enquiry, according to Colliers International’s latest report.

Infrastructure developments such as the upgrades to the Monash Freeway and the strong workforce base in this market will continue to reinforce this demand, the agency suggests, to be driven by a healthy mix of localised businesses and national corporate occupiers.

Zoned land supply is extremely limited, particularly for greenfield sites in the outer east, which has seen occupiers and developers alike, seeking sites in core south-eastern locations including Dandenong South and Keysborough.

Zoned englobo land parcels for sale are all but non-existent in the east forcing users to zero in on brownfield sites which in many cases have been held for generations.

“Serviced vacant allotment sales have been strong, indicated by their shorter duration on the market – Frasers Property Australia’s sold 53 allotments within three months of release, from their property located on the north side of Greens Road, where land rates now reach $350 per square metre,” the report stated.

South-east markets have seen institutions seeking out core land banks in key locations which are generally starved of large scale vacant land opportunities. Earlier this year, Frasers Property snapped up a further 15.72 hectare of land in Keysborough, south of its 101 hectare “The Key Industrial Park”, where the success of this development has been largely driven by its proximity to Eastlink.

Local developers have been competing aggressively for serviced land, which has been driving up speculative development below 5,000 square metres where ongoing take up remains strong by localised users.

Larger properties (above 10,000 square metres) are currently in limited supply, with only five A-grade buildings available between 10,000-20,000 square metres and one greater than 20,000 square metres.

Tenants have few available options and coupled with limited land supply for this style of development, effective rents have been firming in this market.

Recent speculative development has been concentrated in the 5,000-8,000 square metres range, where supply has been historically low for new facilities.

This new supply has been met with positive demand, with the majority of these developments expected to be leased either prior to or shortly after practical completion.

Large investment grade industrial assets in the south-east and outer east continue to attract institutional investors, where growth in capital values has continued to outpace all other precincts.

These markets have also seen very limited investment opportunities for well-located assets, which has seen capital values increasing significantly over the year by 9.8% for the south-east and 12.8% in the outer east.

The yield compression has also been substantive during this period, with average prime grade yields compressing by 60 basis points to be at 6.3% for the south-east and 6.6% for the outer east.

Although investment stock remains in high demand at all price levels, there is unprecedented unsatisfied demand in the sub $20 million bracket where both private investors and syndicators have been aggressively pursuing passive leased investments in this proven logistics location.

Melbourne Industrial Colliers International

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