Over the next two years, the Western Australian economy (on which leasing demand for industrial property depends) is expected to slow down as higher interest rates dampen activity. Even so, with State Final Demand (SFD) growth forecast to exceed 2.0% per annum, the Western Australian economy is expected to outperform the national economy. We anticipate that a solid pipeline of resources investment will place a floor under growth over the near term. Indeed, we forecast an upswing in engineering construction in Western Australia, from $19 billion in the 2022 financial year to $26 billion by June 2024. Major projects driving this investment growth include the second stages of the Pluto and Gorgon LNG projects as well as stage 2 of the Iron Bridge, iron ore scheme. A repairing state budget combined with funding for the Perth City deal, is set to see public investment pick up over the medium to longer term. Major infrastructure projects including the staged Metronet (already under construction) will also provide further support. The substantial investment in resources will drive Western Australia’s exports and gross state product over the next couple of years. However, resources exports will not underpin much new demand for industrial space as they are transported directly to the ports. Growth in SFD has a much stronger multiplier effect on demand for industrial property than does production. Here, the outlook is positive. The strength of the Western Australian economy will continue to encourage businesses to invest in additional capacity over time, boosting demand for industrial property. We also expect transport and logistics operators in Perth to continue the broader supply chain efficiency drive underway Australiawide to cater to structural changes in consumer spending, most notably the continued growth of online retail and firming up local supply chain capacity to service local consumer demands. Looking forward, we foresee demand easing, but remaining positive, this year and next, before strengthening in 2025. The strength of demand for industrial property should help keep vacancies contained. In response, further rises in industrial property rents are expected. Leasing outlook 23 Industrial Market Monitor | 1st Half 2023
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