The average price of small industrial land parcels in Melbourne’s Eastern and South Eastern industrial precincts have risen by up to 19.6 percent and 17.6 percent respectively in the 12 months to June 2017.
The average price of small industrial land parcels in Melbourne’s Eastern and South Eastern industrial precincts have risen by up to 19.6 percent and 17.6 percent respectively in the 12 months to June 2017. Scarcity of ready to go development sites and a general strong demand drives solid competition, according to Savills Research.
Savills Associate Director Research in Melbourne, Monica Mondkar said, “Further rises are anticipated as the site availability is not expected to improve significantly in near term while demand has been rising significantly.”
“We expect 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 driven by rising population and housing demand” she said.
2016 Census reveals Greater Melbourne’s population has increased from 3.33 million to 4.48 million, a rise of 25.6 per cent from 2001 to 2016. Rapid population growth has been putting pressure on availability of land with Melbourne’s urban development program revealing that from 2000-01 to 2015-16, a total of 1,801 hectares of industrial land was rezoned for other use, including residential at 28 per cent, mixed and commercial each at 21 per cent, followed by transport at 15 per cent.
Melbourne’s urban development program showed a net 298 ha of industrial zoned land was consumed in 2015-16, the highest on record since the GFC. Of this 78 per cent was consumed within the State Significant Industrial Precincts- West SSIP, North SSIP and South East SSIP. Shortage of industrial zoned land in the Eastern region resulted in consumption of only 11 ha in the region. Whilst, the total Southern sub region accounted for 128 ha, of which 78 ha was within the South SSIP.
“Industrial market in Melbourne saw the addition of 552,447 square metres (above 5,000sq m size cohort) of new industrial stock built over 2016, a record for five year period. An estimated supply of 751,960 square metres of industrial space is scheduled for completion by end of 2017. However, 66 per cent of this supply is yet to commence construction. We expect a vast majority of this will be proceeding commencement subject to preleasing or as purpose built space for tenants and owner-occupiers”, said Ms Mondkar.
Click here to view the chart on Reported Industrial Development (5,000sq m +)
Strong development activity at the same time with limited serviced site options and low interest rates have driven a surge in land values, especially in some key pockets of South East & Eastern regions.
Savills Industrial Director, Kosta Filinis said the increases in land value were greatest to land parcels sized between 3,000 to 5,000 square metres in estates within close proximity of key road infrastructure. Whilst, 1-5ha sized land parcels saw an increase of about 4 percent in the same period.
He said while land at the smaller end of the scale, currently averaging at $300 a square metre in the South East region, had seen a significant change, rising 17.6 percent from a year ago.
The enthusiasm for industrial property is reflected at every level of the market. Stage 1 of the six-hectare Interlink Business Park in Keysborough sold out within 12 weeks of release earlier this year. Similar lots in the precinct if available would fetch up to $400 a square metre, setting a new benchmark for industrial land in the south-east, added Mr Filinis.
Mr Filinis went on to say that demand for serviced land in Dandenong/Keysborough is outstripping supply and this is putting real pressure on prices.
“The boom in construction activity reflected a growing recognition by developers that occupier demand would sustain in near term, despite higher land and building costs.
“A scarcity of serviced land stock and the area's proximity to freeways and major arterials such as EastLink and Dandenong bypass has successfully attracted occupiers from Knoxfield, Scoresby and Bayswater” he said.
According to Mr David Kalb, Savills Industrial Director the most dramatic rise in the past year had been the 19.6 per cent increase in land values for the East. Land which was selling in June 2016 for $255 a square metre is now averaged at about $305 driven by strong development activity.
“However the Eastern precinct is currently facing a rapidly dwindling land supply with most competition from residential developments. Industrial developers especially for strata units and owner-occupiers alike to put their foot on an Eastern allotment could pay up to $425 a square metre should an opportunity be presented in the fast diminishing land supply market.
`”With delivery of key subdivisions a little way off we are likely to see that upward pressure on values remain in medium term especially with the strong push from occupiers wanting to get into the market,’’ Mr Kalb said.
The South SSIP has the most shortage of vacant land supply and has the second highest rate of consumption amongst all the SSIPs. Unlike other state significant industrial precincts, there is no proposed industrial land being added in near future and the Department of Environment, Land, Water and Planning has revealed that land supply in this precinct will become constrained in the mid - 2020s, said Ms Mondkar.
Ms Mondkar said the mooted North-East Link project, which would connect industrial operators in the east and southeast to the Melbourne Airport in 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.