The industrial sector’s 12-month outlook remains positive, despite looming impacts on warehouse demand as consumers trim their budgets and spend less.
The Australian industrial and logistics sector has remained strong in the third quarter, particularly in terms of occupier demand and rental increases. However, the rate of expansion seen in 2021 has slowed as economic uncertainty weighs on occupier and investor decision-making, according to Colliers.
In its Q3 snapshot on the industrial and logistics market, Colliers said the outlook for the sector over the next 12 months remains positive, although, there are likely to be some impacts on warehouse demand as consumers reign in their household budget and spend less on discretionary retail items.
Despite this, rents continue to break new ground in all areas, fueled by a scarcity of lease choices that has prompted tenants to compete fiercely for space.
“Our view is that the strong level of rental growth will remain over the foreseeable future as vacancy rates are expected to remain at or close to all-time lows over the next 12 months,” the report said.
“While the supply pipeline is increasing, most of this supply is pre-committed, and most backfill options are not becoming available given high lease renewal rates. As a result, landlords are expected to remain aggressive on any new lease proposals.”
Occupier demand is solid, but lower than in the first half of 2022. Gross take-up in industrial and logistics (I&L) was about 900,000 sqm in Q3 2022, bringing the 2022 YTD total to slightly under 3.4 million sqm. In Q3 2022, I&L completions totalled around 430,000 sqm, almost in line with the 440,000 sqm reported in Q2 2022.
The national weighted average prime rent index climbed by 6.2 per cent in the third quarter of 2022, led by Sydney, Melbourne, and Adelaide. Prime rentals soared by 18.9 per cent year on year, about six times the 10-year annual average of 3.2 per cent each year.
Despite rising finance costs and broader economic concerns, investment volumes remained solid in the third quarter of 2022, with around $1.6 billion traded.
While volumes in 2022 have been down from the heights recorded in 2021, they remain well above previous years at the same point in time.