In the near term, the investment market is expected to continue recent trends. Few owners appear willing to sell in a market where rents are rising. Potential buyers are also likely to push for higher yields, repricing properties lower, to compensate for higher interest rates flowing through to a higher cost of capital. Industrial property in Canberra will continue to be traded at a discount to comparable assets in the major eastern seaboard markets due to its relatively small size, shallow occupier demand and Investment outlook isolation from competition from institutional investors. However, over the medium term, we expect the pattern of yields to follow the larger eastern seaboard, softening moderately over the next couple of years before stabilising. It remains to be seen if rental growth will be strong enough to offset likely softer yields, particularly as occupier demand starts to moderate. 32 Canberra experienced a quiet year for new industrial property supply last year with only a handful of new developments completed. During the 2022 financial year, the largest completion was circa 6,600 square metres on Couranga Crescent in Hume. Amongst the few projects currently underway is work on approximately 1,700 square metres of space on Dacre Street, Mitchell. Material and labour shortages are causing substantial delivery delays for the few developers who are proceeding with projects. Annual factory and warehouse approvals data to June 2022 showed a reduction from the previous year to $27 million which is below the long-run average. The relatively low value of approvals heavily favoured warehouses over factories. Approvals data suggests new supply will be minimal in the near term, which will work to keep vacancy rates low. We understand that circa 200,000 square metres of new industrial construction is planned within the Endeavor Industrial Park in Hume, with lots at this estate sold out to a mixture of owner occupiers and developers. However, delays in delivering the next round of supply and rising construction costs will continue to drive up rents required to make development feasible. As a result, we expect the market tightness will take some time to alleviate, which means the upswing in rents has further to run. Supply Canberra demand and industrial building approvals Industrial Market Monitor | 2nd Half 2022
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