Melbourne industry market brief (Nov 2016)

Key Facts

  • Annual supply volumes have eased in 2016, despite above average levels of pre-lease commitments
  • Total available industrial stock increased by 3% over the past quarter to 1,092,623m2
  • Prime rents remained stable at $78/m2 while secondary rents increased by 1.6% 
  • Industrial sales in 2016 to date total $666.9 million, 32% ahead of the long term average

Despite above average levels of occupier pre-lease commitments, Melbourne’s industrial completions are expected to be 24% lower than in 2015 as the speculative market remains subdued.

The Victorian economy continues to strengthen, underpinned by robust population growth combined with above average retail expenditure, strong growth in housing investment and an increase in employment levels over the past 12 months.

These factors have supported positive leasing conditions across Melbourne, with gross take-up measuring 159,139m2 in Q3 2016, 15.7% ahead of the long term average and the highest quarterly total since Q4 2014. 

Nevertheless, vacant stock reached a new series high at October 2016, underpinned by an increase in prime grade backfill options within existing stock as tenants upgraded and consolidated from multiple sites into new facilities (typically purpose built). 

Despite a number of developers recently commencing speculative developments, speculative activity remains subdued and will only account for 22% of total new industrial supply delivered to Melbourne in 2016, compared with 32% in 2015. 

Occupier Demand & Rents

Despite higher than average leasing activity, vacant stock levels in Melbourne rose over the past quarter, increasing by 31,961m² or 3.0% to reach a new series high. Total vacancy now measures 1,092,623m2  across 95 buildings (+5,000m2), 61% above its long term average. 

Vacant stock levels continue to vary across the precincts. For the third consecutive quarter, available space in the West increased, reaching 453,148m2. Prime space accounted for 68% of vacant stock in the West as at the third quarter, with 308,769m2 available. Nevertheless, with no speculative construction activity in the West region, coupled with approximately 70,000m2  of available space currently under offer, vacant stock levels are anticipated to decline in the in the short term. 

In the three months to October 2016, prime vacancy levels decreased by 2.2% with leasing activity offsetting new supply additions. Prime vacant stock currently totals 537,573m2 and accounts for 49% of all vacancies across Melbourne. In contrast, secondary space increased 8.6% in the three months to October 2016, underpinned by the addition of nine backfill options totalling 111,715m2.

Above average levels of take-up were recorded in the secondary market in the third quarter, with 100,080m2 absorbed across nine buildings. Prime space only accounted for 37% of take-up in Q3 2016, of which 22,789m2 was within speculative space. The West accounted for 51% of total take-up. Calendar year to date take-up of 399,678m2 was recorded, 8.5% ahead of the equivalent period last year. 

As a result of increased backfill vacancies, average prime net face rents remained at $78/m2 in the 12 months to October 2016. Secondary rental levels increased by 1.6% to sit at $62/m2. 

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