Demand for industrial property has been extremely strong in Melbourne over the last 12 to 18 months, fuelled by a strong economic rebound from COVID triggered lockdowns and drivers heightened by the pandemic. We are seeing very high enquiry and demand from a range of tenants and owner occupiers in the West, North and City Fringe and healthy demand in the South-East. Indeed, the lack of available options is pushing would be owner occupiers into the pool of tenants, with gross absorption exceeded 2m square metres during 2021. The strength of demand is underpinned by retailers (both pure play and omnichannel), transport & logistics operators and manufacturers In net absorption terms, we estimate around 1.4 million square metres was taken up across metro Melbourne (in buildings greater than 5,000 square metres), and 1.2 million square metres for the 2022 financial year. Low vacancies amongst existing buildings are starting to impair business’ ability to take more space. Even so, net absorption is running at close to three times the long run average. The vacancy rate tightened at a surprising pace in 2021, with record net absorption outpacing record completions. At December 2021, the total vacancy rate had halved from the beginning of the year to a very low 1.4 per cent. Given the strength of demand, we estimate the vacancy rate tightened even further over the second half of the 2022 financial year to around 1.0 per cent. We are seeing very low vacancy rates across the regions, indicating all regions have a shortage of vacant buildings. We estimate net stated prime rents rose 20 per cent to $110 per square metre in the 2022 financial year in the South-East, 16 per cent to $96 per square metre in the West and 20 per cent in the City Fringe to $180 per square metre. Rents in the North are comparable to those in the West. The growth pattern in secondary rents in the South-East reflected low vacancies in the region, increasing by around 21 per cent over the 2022 financial year to $85 per square metre. Despite strong competition to secure tenants for new projects, rising costs means there is still little difference between pre-lease rentals and rents on existing buildings or spec-built warehouses, which are all climbing higher. The main difference between the three is that incentives offered on pre-lease options are typically higher and the tenant must wait for the pre-lease building to be completed. Recent movements in leasing incentives reflect the rapid market tightening. In the South-East, we estimate prime incentives fell modestly in the second half of 2021 to an average of 19 per cent, but have fallen more steeply since, to 14 per cent by June 2022. In the West, incentives finished last year at an average 22 per cent but were closer to 20 per cent at June. In the City Fringe, average incentives are lower, moving from about 10 per cent at the end of 2021 to 8 per cent in the second quarter of 2022. Secondary incentives in the South-East have also reacted to low vacancies falling over the 2022 financial year an average 10 per cent. Leasing market 10 Industrial Market Monitor | 2nd Half 2022
RkJQdWJsaXNoZXIy MTI3ODI1