E-commerce fuels speculative development across Australia’s east coast, while food and grocery retailing also drives demand in the industrial sector, finds fresh research from Knight Frank and JLL.
Speculative development is booming across Australia’s east coast industrial markets, with volumes in 2019 on track to exceed 2018 levels, finds latest research from Knight Frank.
The agency’s latest insights report tracks accelerating growth in the industrial sector Sydney and Melbourne fuelled by speculative development.
According to Ben Burston, Knight Frank’s head of research and consulting, 1.49 million sqm of new industrial stock has been completed in Sydney, Melbourne and Brisbane since 2018. Of this, almost 87 per cent was in Sydney and Melbourne’s industrial precincts.
Knight Frank estimates that almost 560,000 sqm of spec projects are in the pipeline, which “clearly signals the intent of major institutional investors to step up their exposure to the fast-growing industrial sector,” Burston explains.
Robert Salerno, Knight Frank’s head of industrial, says demand for spec development is being driven by online retailing, which currently represents nine per cent of Australia’s retail sales but is forecast to grow to 12 per cent by 2021.
“Distributors, logistics operators and retailers are increasingly seeking out supply-chain efficiencies to meet the demands of e-commerce,” Salerno explains. But the “huge demand for quality logistics space is outstripping supply” and this is driving speculative development.
Nearly 50 per cent of spec development is leased prior to practical completion, the Knight Frank report finds.
“In Sydney, the average time on the market is one month, with the majority of spec being leased before completion,” Salerno says, adding that spec buildings average two months on the market in Melbourne and four in Brisbane.
“Half of the upcoming spec in Melbourne’s west is already under offer, which is indicative of the level of demand in the market and the ‘flight to quality’ trend towards higher-grade facilities.”
Meanwhile, JLL expects the food and grocery sector to drive demand for industrial space, “not only in the form of transport distribution, logistics and cold storage space, but also with respect to space for food development and manufacturing,” says JLL’s director of industrial research in Australia, Sass J-Baleh.
Food retailing currently totals around $133 billion annually, says JLL.
“There has been significant capital investment into cold storage, which is a growing sector that ultimately services the population,” says JLL’s head of capital markets for industrial and logistics, Tony Iuliano.
“Investment capital flows for the industrial sector will continue to drive yields to levels never seen before in this country.”