Businesses requiring industrial space for transport and logistics are driving Melbourne’s industrial property market, committing to 332,389sq m of warehouse space throughout 2017.
Savills latest Industrial Briefing reveals these sectors accounted for 43 percent of the total 770,936sq m leased in the 12 months to December 2017.
Although the total space leased was down on the 928,154sq m reported to be leased by the end of 2016, it remained 11 percent above the 10-year average of 696,765sq m.
The rise of Melbourne’s west
The trend toward online sales is a key factor behind the continued growth in demand for warehouse and distribution centres. This has been benefitting Melbourne’s west in particular, due to its relative affordability and proximity to the Port of Melbourne, which is Australia’s largest container port.
Melbourne’s western industrial precinct, which was the most affordable of all precincts, had been consistently increasing its share in the city’s industrial leasing market. The western suburbs now account for 46 percent of Melbourne’s total leasing activity, as compared to 35 percent 12 months ago.
Of the 354,205sq m of industrial space (tenancies more than 2,000sq m) leased in Melbourne’s western industrial precinct in the 12 months to December 2017, 63 percent, or 224,645sq m, was secured by the transport and logistics sectors across 19 leases.
This figure represents a whopping 57 percent increase in take-up on the previous year, pushing absorption from transport-oriented businesses to record-high levels.
The report briefing highlights 35 lease deals in Melbourne’s west in 2017, 11 more than in 2016, with 14 leases for more than 10,000sq m.
Savills Melbourne’s Director for Industrial & Business Services, Greg Jensz, said an undersupply in serviced land availability had driven prices, particularly for smaller lots.
With the increase in underlying land prices, incentives to lease are expected to drop and face rents should grow from circa $75 to $80 per sqm for larger buildings 10,000 sqm plus, and from $80 per sqm up to mid-to-high $80 per sqm for mid-sized buildings between 5,000sq m and 8,000sq m.
Infrastructure projects leading the way
Looking forward, several infrastructure projects are under development and in the pipeline, which will benefit Melbourne’s industrial markets by improving connectivity, reducing travel times, and expanding the transportation network.
The West Gate Tunnel Project will provide a second river crossing at Maribyrnong and an alternative to the West Gate Bridge, with direct access to Port Melbourne. When this happens, more logistics-oriented companies will seek to set up in Melbourne’s western industrial precinct.
In addition, the state government has announced a $1.8 billion public-private partnership to upgrade about 700 kilometres of arterial road network through the western suburbs, which will further augment industrial demand in those areas.
Lastly, the federal government initiative to develop a $10.9 billion inland rail line between Brisbane and Melbourne will drastically improve the last-mile delivery process, and drive a considerable amount of industrial development to the proposed route in Melbourne’s western corridor.