MELBOURNE Melbourne prime industrial market indicators South-East North West City Fringe Net face rent ($ sqm) 123 103 108 204 Incentive (%) 13 16 16 8 Yield (%) 4.25 4.25 4.25 4.15 Capital value ($ sqm) 2,894 2,424 2,541 4,916 9 Occupier demand for industrial property across Melbourne has maintained a very brisk pace in recent times. Metro-wide gross take-up figures was around 1.6 million square metres over the year to September 2022. Net absorption reached 1.16 million square metres (buildings > 5,000 square metres) during the 2022 financial year and tracked to around 1 million square metres for calendar year 2022, both more than two times the long run average. Indeed, enquiry has been strong across the North, West and South-East, but is easing in the City Fringe. Overall, businesses need to make quick decisions when they come to the market looking for space because of the lack of available options. Demand is coming from a broad range of sectors as businesses invest in supply chains. However, the most active groups in the market looking for space last year were transport and logistics, retailers (including e-commerce) and manufacturers. Even though the value of online retail spending nationally peaked around the start of last year and has fallen back, it is still at historically high levels with limited pull back in occupier demand so far from e-commerce operators or those who service them. Demand for space is strong from both owner occupiers and tenants, but there is an acute shortage of options for owner occupiers to buy. Even so, very low vacancies across the regions are acting to constrain occupier demand from both sources. Strong net absorption outstripped above average completions during the 2022 financial year, continuing the rapid reduction in the vacancy rate across the metropolitan area. At June 2022, the total vacancy rate fell to 1.2% (in buildings >5,000 square metres) marking the lowest vacancy rate on record. The total vacancy rate ended last year just above 1.0%. Vacancies amongst all the regions are tight, particularly in the West and City Fringe, but there are limited options available metro-wide for those seeking larger buildings. The combination of strong demand and very low vacancies underpinned a sharp increase in prime net stated rents in 2022. Net stated prime rents rose 21% to an average $123 per square metre in 2022 in the South-East, 22% to $108 per square metre in the West and 23% in the City Fringe to $204 per square metre. Rents in the North were slightly lower than those in the West. The growth pattern in secondary rents in the South-East reflected low vacancies in the region, increasing by around 17% over 2022 to $96 per square metre. Rising costs mean there is not much difference between pre-lease rentals and rents on existing buildings or spec-builds, which are all climbing higher. Rising land prices and construction costs are flowing through to higher pre-commitment rents, in turn pushing up market rents. Recent movements in incentives in Melbourne reflects how low vacancy rates are across the regions. In the South-East, prime incentives fell sharply in the first half of 2022 to an average of 15%, tracking towards 13% by December 2022. In the West, incentives finished the 2022 financial year at an average 20% but are now closer to 16%. In the City Fringe, average incentives are lower, moving from about 9% in June to 8% now. Secondary incentives in the South-East were already much lower than prime at an average 10% at June and have changed little since. Leasing market Industrial Market Monitor | 1st Half 2023
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