A two-tired industrial land market is emerging, according to Savills, with higher rates causing prime yields to rise nationally.
According to Savills’ new report, east coast markets are witnessing a growth rate of more than seven times their 15-year average.
Prime rents on the east coast have grown by nearly 40 per cent and secondary rents by 45 per cent when compared to three years ago. Some sub-markets are even experiencing growth over 50 per cent.
Sydney prime net face rents are the highest across the nation reflecting growth of 36.4 per cent over the year, following a 4.4 per cent push in Q1.
Melbourne has been similarly strong, with rents growing on average 16.4 per cent year-on-year and 3.3 per cent growth emerging in Q1.
Brisbane grew 14 per cent year-on-year and 2.8 per cent in Q1, while Perth saw 15.3 per cent average yearly rise and 5.3 per cent in Q1. Adelaide rents rose 9.3 per cent but have stabilised following +5.2 per cent growth in Q3 2022.
All of Australia’s major cities are seeing rents pushed well above previous benchmarks, according to Savills National Head of Research Katy Dean.
“Combined with a very high level of demand relative to limited supply, we’re seeing not only record-low vacancy, but also a very high level of pre-commitment,” she said.
According to the report, a majority of REITs have disclosed occupancy rates ranging from 99 to 100 per cent, with over 80 per cent of their new projects already committed.
As a result, the availability of existing leasing space in Sydney and Brisbane has dwindled, making it nearly impossible to find large mandates exceeding 20,000 square meters.
This, along with the persistent surge in demand, is exerting further strain on the sector. Moreover, with rising construction costs, build times are increasing and most new supply is being pre-committed, exacerbating the pressure on the industry.
“With all existing space occupied and such strong commitment on new projects, it is hard to see industrial vacancy rates shifting in the short to medium-term,” Ms Dean said.
Savills’ Shed Briefing unveiled the growth in industrial land values has reached an inflection point following a rapid increase in rates in the latter half of 2022.
Although small lot prices on the east coast are still showing an average annual growth rate of between 16-20 per cent, the pace of this growth has decelerated, with most markets exhibiting no change over the past three quarters.
According to the report, a two-tiered market dynamic has emerged, with prices for small lots in certain Sydney sub-markets, which usually command a premium almost twice as high as Melbourne and Brisbane, beginning to decline since late last year.
This pricing shift also reflects buyers’ willingness to pay for sites suitable for multi-level development compared to those suitable for traditional single-level structures, the report noted.