28 The investment market is expected to continue recent trends. In an environment where rents are rising, few owners are willing to sell. Potential buyers are also likely to push for higher yields to compensate for higher interest rates flowing through to their cost of capital. Due to Canberra’s relatively small size, shallow occupier demand and lack of institutional investor competition, industrial property in Canberra will continue to be traded at a discount comparable to assets sitting along the major eastern seaboard. However, over the medium term, changes in yields are expected 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 softer yields, particularly as occupier demand starts to moderate. Investment outlook New industrial property completions were low across Canberra through the second half of 2022, with few projects finished throughout Canberra’s main industrial precincts. The lack of industrial development is a result of increasing construction costs in combination with material and labour shortages. Across the precincts, there were no major projects completed in Hume, during the second half of 2022, however there is circa 20,000 square metres of space under construction on Val Reid Crescent, and two potential developments of approximately 6,900 square metres and 1,400 square metres planned on Paspaley St and Mugga Lane respectively. Two new developments in Fyshwick were completed in the second half of 2022 with circa 3,000 square metres at 25 Cessnock Street and roughly 2,300 square metres at 157 Newcastle Street. Whilst Mitchell has limited space for new industrial development, two warehouses on the same lot on Dacre Street (with a combined space of approximately 1,300 square metres) are currently under construction. Total annual approvals to November 2022 for factories and warehouses increased to $33 million across Canberra, a mark still well below the long run average. Approvals for warehouses far exceeded that of factories. Approximately 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, the market tightness will take some time to alleviate, which means the upswing in rents has further to run. Supply Industrial Market Monitor | 1st Half 2023
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