Industrial rents accelerate setting a new benchmark for growth

AUSTRALIA, 21 JULY 2022 – JLL’s 2Q 2022 Research figures have recorded the strongest year-on-year GSP weighted average rental growth in national industrial markets in 33 years.

Prime net face rents have increased by 6.22% quarter-on-quarter nationally over Q2 – outperforming the previous 25-year record set last quarter (3.25% q-q). Nationally, year-on-year rental growth has averaged 14.9%.

The 2022 calendar year is likely to record over 2.5 million sqm of completions for industrial space. As at 30 June, there is close to 1.4 million sqm of stock already completed in Australia’s industrial precincts and a further 1.2 million sqm under construction and due for completion by the end of 2022. Under construction stock already has healthy levels of pre-commitment (66%) with tenants already committed to 1.3 million sqm of space due for completion by 2024.

JLL’s Head of Industrial & Logistics - (Australia) Peter Blade said, “The challenge for tenants will get worse before it gets better, with limited space options for tenants in most markets just as they need to increase inventory levels in the lead up to Christmas. Though there is some availability in upcoming supply, many developers are waiting to closer to practical completion dates before signing deals with tenants, knowing that rents are escalating fast and seeking to lock tenants into higher rental commitments. We have seen strong enquiry levels and find that tenants are focused on supply chain efficiency more than warehousing costs which are just 5% of business costs for most logistics operators. There has been limited push back on rental increases from tenants that need space,” said Mr Blade.

JLL Research has recorded very strong land value growth in a number of precincts over the quarter. Land values for 1ha lots in South Sydney have increased to $2,750 per sqm (+20%) and from $730 to $1,000 per sqm (+37%) in Melbourne’s Laverton North. Land values have accelerated significantly over the last 2½ years as developers respond to elevated occupier demand. Land values for 1ha lots increased by as much as 35% to over 210% depending on market since the end of 2019.

JLL’s Senior Director and Head of Industrial & Logistics Research - (Australia) Annabel McFarlane said, “The extraordinary cycle of industrial land value growth has likely come to an end. Most of the uplifts in value occurred early in the quarter and we expect that land values have now peaked. Developers and investors are managing a multitude of cost elements in feasibilities. Increasing construction costs, wage costs, and land costs have combined with the RBA’s tightening monetary policy which began in May 2022 has added 125 basis points to the cash rate and increasing the cost of debt for developers. However, investors and developers still have confidence in rental growth and are likely to become more selective. Increasing cost inputs will create further upward pressure on rents,” said Ms McFarlane.
Gross take 1H2022 compared to 15 year, half year averages

Gross take up of industrial space for the quarter reached 773,260 square metres in 2Q 2022, marginally exceeding the national 10-year quarterly average (670,250 sqm) for a seventh consecutive quarter even through very low vacancy in some markets is limiting occupier moves.

Demand remains very strong in Melbourne and Brisbane with gross take up exceeding the 10-year quarterly average. Melbourne markets recorded 285,100 sqm of gross take up for the quarter, 19% higher than average. However, the standout was Brisbane with 249,900 sqm of gross take up, more than double the quarterly average for this market (124,400 sqm). Sydney is severely limited by lack of options for occupiers and take up was 137,000 sqm, 40% less that average quarterly take-up for this market.