Transport & Logistics, pre-commitments, driving Melbourne industrial market: Savills

Transport and Logistics as well as pre-commitments are driving Melbourne’s industrial property market, with a shortage of serviced lots driving hikes in land values in some precincts, according to Savills.

Monica Mondkar, associate director research, Savills, said Transport & Logistics accounted for 320,330 square metres or 36 percent of the 891,964 square metres leased in the 12 months to March 31.

She said the total square metres leased was down on the 970,317 square metres reported leased in the previous 12 months but remained well above the five year average of 740,010 square metres.

"Savills research also revealed a continuation of the strong pre-commitment market with the 251,270 square metres of pre-committed industrial space adding to the 316,191 square metres pre-committed in the previous corresponding period, bringing to well over half a million (567,461sqm) square metres in total pre-commitments over the last 24 months," she said.

"The trend to online sales in particular was a key factor behind continued growth in demand for warehouse and distribution centres.

"Melbourne’s industrial market has traditionally been home to a wide range of occupiers including manufacturing, engineering and wholesale sectors, however tenant demand from the transport & logistics sector over the past two years has been increasing steadily and the rise in online retailing has been a key driver,’’ Ms Mondkar said.

"Household goods and housing construction were also significant industrial demand drivers in Victoria, as population growth continued to outstrip all other capitals.

Melbourne’s population growing at 2.4 per cent - the fastest in the nation – ahead of Brisbane (1.8 percent) and Greater Sydney (1. percent).

Source: Savills Australia Research

Greg Jensz, Savills’ Victorian Head of Industrial Sale & Leasing said the very strong pre-commitment market was being driven by a number of factors including attractive rental deals and the lack of suitable stock.

"In some cases tenants are finding more attractive rental agreements than available with existing buildings but this has generally been negotiated over longer, circa 10 year lease arrangements," he said.

"In other cases buildings have been purpose-built to suit the peculiar requirements of tenants, for example cold storage users, which in most cases is simply not available, and generally these are larger requirements and so inflate total leasing data.

"A shortage of available serviced land had seen significant hikes in value.

"Land prices are through the roof due to a severe shortage of available serviced land.

"Small lots in the north are now going for up to $325 a square metre and lots of one hectare plus have sold for up to $250 a square metre.

"Meanwhile in the west small lots are achieving $275 a square metre and one hectare plus up to $210 a square metre.

"Embryonic growth of a new speculative industrial construction push was another factor driving land values, especially around key transport routes, however rental growth had not been a contributor.

"What speculative construction there is has, more often than not, been on land purchased some time ago at cheaper rates allowing construction to stack up for some developers at current rents."

Key industrial leases 12 Months to March 2017

 Source: Savills Research