Melbourne west industrial rents soar

A lack of new development and a drop in owner-occupier activity have pushed prime industrial rents in Melbourne’s west above pre-GFC levels.

Average prime grade industrial rents in the west are now about $70 per square metre, compared with $63 per square metre in 2007, according to latest Colliers data.

For 2011 to date, 131,977 square metres of space has been leased compared with a total of 201,741 square metres leased throughout 2010.

Recent deals in the area include the Simon de Winter Group, part of the Solomon Lew empire, which has leased 7,340 square metres across at warehouse 7 at 4 Judge Street, Sunshine, for seven years in a deal negotiated by Colliers International’s Stephen Newsham.

The group is relocating from 660 Rathdowne Street, CARLTON NORTH, which has been sold and is about to undergo a major redevelopment.

In January 2011, transport and logistics provider Northline signed a six-year 23,000-square-metre lease at 65-76 Strezlecki Avenue in Sunshine at $68 per square metre.

According to Nerida Conisbee, Colliers International national research director, Melbourne West is the only industrial market in the country where the market has bounced to levels above those recorded in 2007.

As a result of the increased demand and lack of development, Conisbee says there are now major opportunities for developers who are in a position to capitalise on the improving conditions.

Nathan Bingham, manager-in-charge of Colliers’ Melbourne West office, says while tenant demand is strong, owner-occupier activity for properties in excess of 5,000 square metres has slowed dramatically and new development has been scarce, which has further contributed to the growth in rents.

“In 2010, there were nine major owner-occupier deals in the west in excess of 5,000 square metres. This year there have been none,” he said.

“This is driven by a lack of supply in the market of buildings that are available for sale, as well as fragile confidence from potential owner-occupiers, and difficulty getting finance,” he says.

Bingham says this is all good news for established private developers looking to undertake new speculative development to capitalise on the improving market conditions.

“In the short term, in the absence of new development, rents are likely to continue increasing this year and given fewer developers can get finance and tenant demand continues to grow, it’s very unlikely that development that does come online in the medium to long term will outstrip demand,” he says.

According to Colliers, the city fringe market remains the most expensive, with rents about $110 per square metre, but well below pre-GFC levels of more than $140 per square metre. Average rents have hardly moved in the last three years.

Melbourne’ s south-east and north industrial markets have also rebounded strongly in 2011.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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