The outlook for the industrial property market in Darwin will be influenced by the prospects for the Northern Territory economy. On our forecasts, the Territories SFD will end this year with a reasonable 3.1% growth before moderating to less than 2.0% in 2024. The moderating outlook is linked to the outlook for mining and government defence spending. The outlook for mining investment remains uncertain. Changes in government policy and concerns about climate change are clouding the outlook, with this headwind not expected to abate. Many projects have been delayed, and investment will be significantly lower in the medium term. A prime example of the uncertainty is Santos’ $5 billion Barossa LNG project. This project was about the commence construction but has now paused whilst a cultural impact assessment takes place. Some offset will be provided by government spending, with the federal government currently undertaking several projects to expand the number of military installations in the region. Further expenditure is also planned around US Force Posture initiatives, with works on this program anticipated to run until 2026. In addition, the Darwin City Deal includes a new campus for Charles Darwin University (currently under construction) and the State Square Art Gallery & Community Hub. Over the medium term, positive economic growth and project specific requirements should flow through to moderate demand for industrial properties, with a lag, allowing the substantial overhang of vacancies to be slowly absorbed. Leasing outlook 31 There was no real improvement in the state of Darwin’s industrial investment market last year from 2021, with little activity to speak of. Darwin’s stock of industrial space features mostly smaller properties with no major sales above $5 million completed in recent times. The most prominent recent sale was 16 Anictomatis Road, Berrimah. This 1,000 square metres warehouse was sold by GPT for a reported $2.8 million. Amongst smaller prime properties, the average yield at December 2022 was 7.0% to 8.0%, which was little changed on 2021 rates. Average capital values for prime properties also experienced no change in 2022. There would appear to be more upside than downside for price growth in Darwin’s industrial property market over the next few years. The slow improvement in the leasing market should, in time, reduce the overhang of vacant space in the market, boosting the likelihood of rental growth. However, this process will take time. The other key influence is the yield differential of Darwin to other industrial markets across Australia. As rising cost of debt flow through on higher interest rates, investors are likely to look more favourably on higher yielding markets like Darwin. Investment Industrial Market Monitor | 1st Half 2023
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