Healthy and strong finish for Melbourne's industrial market

The Savills Blog

VIC Industrial: Healthy and strong finish for Melbourne’s industrial market

A mix of investors, owner-occupiers and tenants pounced on the premium opportunities that Melbourne’s south-east industrial precinct presented in 2018. 

Shortage of land pushing prices up

Savills Australia’s Notting Hill business witnessed a healthy and strong finish to the year, with the shortage of land pushing prices to unprecedented highs. 

Industrial land supply has dried up and, consequently, 4,000sq m allotments fetched record prices of circa $600/sq m.

Investment yields tightened even further throughout the course of the year, with prime yields reaching circa 6.0 percent.

Savills brokered one of the largest industrial leasing deals in Melbourne’s south-east for 98 South Park Drive, Dandenong South.

The sub-lease was negotiated on behalf of Woolworths and will see Borders Express Pty Ltd and JTC Import/Export Pty Ltd pay a combined rent of $2.065 million per annum. 

This major leasing transaction underpins the ongoing tightening of supply of quality industrial warehouses available for lease. 

Savills also brokered one of the largest industrial sales of 2018, transacting Siemens’ Australian headquarters at 885 Mountain Highway, Braeside, for $47.5 million.

The investment case was underpinned by a partial leaseback to Siemens Australia, with an industrial value-add opportunity on the balance. 

Tightly held industrial market

Warehouses continued to be in high demand, with an 8,140sq m Rowville office/warehouse at 800 Wellington Street selling for the first time in 20 years for $13 million to a local owner-occupier.

Once again, this sale reflects the tightly held nature of Melbourne’s south-eastern industrial precinct and the current strength for established, large-scale facilities.

Given the credit-tightening environment, we predict a more tempered market for 2019.

Nevertheless, we do not expect to see any material reductions in price levels due to the lack of supply of industrial land and existing buildings.

There will definitely be no oversupply in terms of available space, with very low vacancy rates across all south-eastern suburbs.

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