Industrial vacancy rates in the major cities along the East Coast of Australia have reached unprecedented lows, according to a new report by Knight Frank.
Available industrial space decreased by 18 per cent in the first quarter of 2023, leaving only 444,681 square meters up for grabs, the report said, with Sydney emerging as the tightest market, with a mere 43,759 square meters of space available—a 51 per cent contraction.
Melbourne also experienced a significant shortage, with available space dwindling to 174,330 square meters.
In contrast, Brisbane saw a marginal increase in available space, totaling 226,592 square meters, thanks to the initiation of new speculative developments.
The research highlights that Brisbane now accounts for 51 per cent of the remaining available space across the eastern seaboard, with Melbourne representing 39 per cent and Sydney 10 per cent.
This overall decrease in vacancy rates follows a 56 per cent decline throughout 2022 and an additional eight per cent drop in the fourth quarter, bringing the total vacancy to 547,748 square meters.
The scarcity of industrial space along the East Coast is further emphasised by the fact that nearly two million square meters less are available compared to the peak in October 2020, an 82 per cent decline.
Knight Frank Partner, Research and Consulting Jennelle Wilson said take up over the first quarter of 2023 was impacted by the limited opportunities on the market, being 26 per cent below the three[1]year average, totalling 515,653.
“Intense competition among tenants for limited available space resulted in further rental growth across all the Eastern Seaboard capital cities,” she said.
“Brisbane led the quarterly rental growth by an 8.6 per cent increase, followed by Sydney at 8.2 per cent, with this city overtaking Perth for the fastest growing rents year on year, with prime rents up by 38 per cent over 12 months.
“Adelaide and Perth reported 2.5 per cent and two per cent rental growth over the same period, while Melbourne saw moderate growth of 1.5 per cent on limited deals across most submarkets.
“Incentives continued to decline in Q1 and currently average 10 per cent across the Eastern Seaboard, which stimulated stronger growth in effective rents over the quarter.”
Knight Frank’s data reveals that both prime and secondary industrial space are currently at record lows.
Knight Frank National Head of Industrial Logistics James Templeton said ongoing strong tenant demand was being met with constrained supply, which had led to increased competition.
“Secondary vacancy is now particularly low as tenants are grabbing immediately available options, with less of a concern regarding grade as long as it is functional,” he said.
“Prime vacancy is also seriously low, however this grade is being somewhat replenished as speculative developments start construction.”
Looking ahead, the gradual easing of material cost and supply chain pressures should aid the supply pipeline, allowing it to reach a record of circa 2.5 million square metres in 2023, said Mr Templeton.
“However, 43 per cent of the pipeline is already pre-committed and 10 per cent is owner occupied, so it is unlikely that we will see a significant amount of speculative space entering the market and alleviating the current widespread undersupply,” he said.
Brisbane stands out with a significant development pipeline, as the report forecasts the delivery of 843,573 square meters in 2023, far surpassing its long-term average of 357,940 square meters.
Similarly, Sydney and Melbourne are expected to introduce substantial new developments, with approximately 807,641 square meters and 845,231 square meters, respectively.