Strong demand for small scale Melbourne industrial units: HTW

The Melbourne industrial market performed strongly in 2017, according to the recent report by valuers, Herron Todd White (HTW).

With interest rates remaining low and a relatively stable economy, new industrial developments are continuing to come onto the market, it noted.

"This can be seen in growth corridor areas where there is an abundance of vacant land prime for development, including suburbs such as Clyde and Pakenham in the south-east, Carrum Downs in the south, Truganina and Derrimut in the west and Epping in the north," the report said. 

"The need for small scale industrial units continues to grow, especially for tradies and retirees looking for extra space solutions to store their associated tools or lifestyle equipment."

HTW expect to see increased demand for large scale warehousing and distribution facilities, particularly in the western suburbs where the proximity to the western suburbs to the West Gate Freeway, Princes Freeway and Western Ring Road is a major draw card for transport, logistics and distribution.

It noted there have been a number of new major projects throughout Melbourne, including the Woolworths Distribution Centre in Dandenong South, the Merrifield Business Park in Mickleham and the Bund Business Park in Port Melbourne, which are all due for completion in 2018.

Throughout 2017 there was extensive investment in infrastructure with major road widening projects for the City Link Tullamarine Freeway, Consumer Affairs Victoria Project and the Monash Freeway. Industrial areas in the vicinity of these transportation routes are anticipated to have continued demand.

Rental levels are expected to remain reasonably stable for the first quarter of 2018. Prime face rental rates in Melbourne’s industrial outer areas have generally ranged between $70 and $90 per square metre of building area per annum net plus GST, with secondary rates around $50 to $70 per square metre of building area per annum net plus GST.

Tenant demand has remained relatively strong over the previous 12 months however we remain cautious of oversupply given the large amount of industrial development occurring, especially in the south, south-east and west.

Incentives are expected to remain reasonably high with larger scale new developments achieving a range of 15% to 35%, HTW noted.

Yields have been under increasing downward pressure for prime grade industrial development with yields for secondary development generally steady.

"This has been underpinned by the current low interest rate environment and investors hunting quality investments and there being limited properties for sale," the March report noted.

Vacancy rates are continuing to decrease in comparison with 2016 as tenant demand is increasing to match the supply on offer.

Demand has remained consistent this year in the northern suburb of Epping following the relocation of Melbourne’s fruit and vegetable market to Cooper Street in late 2015. This area has seen an influx of speculative development for both standard of office and warehouse accommodation and cold storage facilities.

Areas to avoid are markets with over supply, vacant older style properties without any development up side and industrial properties with high rental rates yet short WALEs.

Areas of continued demand include the Melbourne Airport precinct, west of the Essendon Football Club Training Facility in Tullamarine. Demand for larger warehouses, distribution centres and other transport and logistics facilities is expected to continue to grow in the south-east, where developers are listening to and meeting tenant and occupier requirements. Green eld land available throughout suburbs such as Keysborough, Dandenong South, Lynbrook and Cranbourne West are expected to be sought at strong levels, with rates breaking the $400 per square metre of land area barrier (for sites under 4,000 square metres).

In addition to the above, further opportunities foreseen in the market are those properties with solid cash flows underpinned with medium term redevelopment potential. 

A new factory in Epping Central Industrial Precinct has been sold for $1.27 million (pictured below).

Located minutes from the Epping Fruit & Vegetable market, Western Ring Road, Hume Highway & Cragieburn bypass, the total building area of the property is 827 square metres (732 square metre floor plus 95 square office), and the total land area is 1200 square metres.

It also includes 13 car bays.