Shed prices up 23 percent in Melbourne

18 July 2018

Melbourne’s industrial shed prices are up by a whopping double-digit in all the precincts, with the highest growth coming from the Northern precinct, up by an average of 23 percent as per Savills Research Quarter Times Q2/2018 report.

Melbourne was the only industrial market in the country which saw it’s capital values rise within all industrial precincts over year to June 2018 period.

In a national comparison the only market that saw stronger price growth was Southern Sydney, with an increase shed price of 28 percent.

Capital values in Melbourne’s West also saw a solid 17 percent growth, while Melbourne’s East and South East rose by 20 percent and 12 percent respectively throughout the 12 months to June 2018 period.

Capital values in Melbourne are now ranging between $1,300 and $2,125 per sq m on average, which allows for the Melbourne industrial property market to be most affordable in the country.

Cache Logistics and Morgan Stanley purchased substantial logistics assets in Melbourne’s North and West as part of a national portfolio acquisitions. Additionally, Ascendas Group snapped 169 Australis Drive at the West Park Industrial Estate from Abacus Property Group in the West.

Savills Australia’s Associate Director of Research in Melbourne, Monica Mondkar said, “A more heightened capital value performance has been noticed in the North-West precincts lately due to many large logistics and freight properties transacted in the corridor over the past year”.

The scarcity of industrially zoned sites and a general strong tenant demand drives solid competition, according to Savills Research. On averge land values for smaller lots (3,000 to 5,000 square metres) are now ranging between $263 and $950. Shortage of ready to develop industrial land has pushed up values by as much as 25 and 38 percent in the North and West respectively. At the same time, the Eastern and South Eastern corridor saw it’s small lot prices go up by an astounding 51 and 50 percent respectively.

“We expect land supply to get further constrained as an increasing amount of industrial land gets consumed at the same time being rezoned for residential and commercial purposes amidst Melbourne’s unprecedented population boom,” Ms Mondkar said.

“Surging land values has had a flow-on effect on the industrial asset valuations, while pent-up tenant demand, especially for large purpose-built modern facilities, has lifted the rents, Ms Mondkar said.

Net face rents in the South East and the East were lifted by as much as 6 percent over the year to June 2018, while incentives have dropped from the range of 15 percent and 25 percent from a year ago to their current range of 10 and 20 percent.

In the last 12 months, 236,000 square metres of industrial space was leased up in the South East, 18 percent above the 10-year average.

“With demand levels remaining above long-term averages, and supply being lowest in the five year period, we see incentives dropping further down from their current levels”, said Savills State Director Kosta Filinis.

“Further, ongoing shortage of site availability and while the tenant demand remains strong, landlords can expect to enjoy strong rental conditions,” added Mr Filinis.

“Also, the price growth in the Melbourne’s industrial property is not just due to yield compression, but also augmented by recent rental growth and the much-anticipated rent rises over coming months,” said Mr Filinis.

“The North-East Link project, which would connect industrial operators in the east and southeast to the Melbourne Airport in the north without going through the city, would further augment the strong demand of Melbourne’s East and South East regions as Australia’s key industrial markets,” Ms Mondkar said.

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Key Contacts

Kosta Filinis

Kosta Filinis

Director
Industrial & Logistics

Savills Notting Hill

+61 (0) 3 9947 5106