Demand for industrial and logistics assets at all time high
Demand for industrial and logistics assets continues to be incredibly high, with the vacancy rate on the East Coast hitting a decade low according to Knight Frank.
Tenants have been quick to lock down warehouse space as competition has intensified, resulting in a 15% drop in vacant space on the east coast – 44% less than this time last year.
Over the last 12 months, prime net face rents (blended average) have risen 6.6% in Sydney, 5.3% in Brisbane, 10.1% in Melbourne, 9.4% in Perth and 3% in Adelaide.
Ben Burston, Chief Economist at Knight Frank Australia, said annual take-up of space (including pre-commitments) is running at about 20% above its five-year average, as businesses continue to build resilience into their supply chains.
“Development completions are working to support the demand, with a record high of 2.7 million sqm planned for 2022.
“Speculative completions will reach a new high across the year too, with approximately 956,000sqm planned for the east coast, representing the largest volume of speculative projects since the series began, with Brisbane and Melbourne comprising 88% of this stock.”
Investor demand for industrial assets continues to be incredibly strong, with an estimate of approximately $3.7 billion for Q1 2022, after transaction volumes topped $19 billion in 2021 – the highest on record according to Knight Frank.
Investors are increasingly targeting safe-haven markets such as Australia, with the share of cross-border investment rising from 46% in 2021 to 67% in Q1 2022.
Sydney super prime yields compressed 25bps in Q1 and are now in line with Melbourne at 3.5%. Perth and Adelaide yields compressed a further 25bps to 4.25%, while Brisbane compressed 5bps to average 4.10% in Q1.
The strength of demand has seen yields compress upwards at 80bps on average over the last 12 months, but the pace of compression has slowed in recent months.
“The sustained high level of investment volumes shows that investor appetite for the sector remains firmly in place, with the number of properties exchanged in Q1 around 60% above the first quarter trend seen in the last two years,” Mr Burston said.
“Cross-border capital continues to be a key driver of the market and with travel returning, we expect to see pent-up demand from buyers who have been unable to visit over the past two years.”
“Rising interest rates are clearly a consideration for many investors, but with rents growing rapidly buyers continue to seek opportunity in infill locations in Sydney and Melbourne and in higher yielding markets like Adelaide and Perth.”