VIC MARKET OVERVIEW
VICTORIA
Gordon Code - National Director, Industrial - Colliers
Industrial has been the strongest performing and most resilient asset class for many years now. Do you anticipate that continuing in 2024? The industrial real estate market has experienced extraordinary growth during and after the COVID-19 pandemic. Whilst rents and capital values have started to increase in 2023, driven by the strong demand and low vacancy, it has allowed for occupier demand to start stabilising in recent months. In 2024, we expect continued growth in Victoria as occupiers seek refuge and an alternative from higher occupancy costs in New South Wales. Given historically low vacancy rates across Australia, what impact has this had on rents and industrial property values? Unsurprisingly, sustained low vacancy and above-average demand have been key drivers in the dramatic rent growth. At the same time, we had significant yield compression, resulting in a perfect storm to drive capital values. What is the current and foreseeable appetite from both investors and owner occupiers for industrial property? Industrial investors are now seeking more value-added opportunities where rental reversion can be activated in the short to medium term. At the same time, owner-occupiers have never been more motivated to secure their premises on a freehold basis as it is a shield to growing rents.
GORDON CODE
Is e-commerce still driving demand for new supply?
E-commerce providers have slowed in their rapid absorption of industrial space during the last couple of years as they re-weighted to a rapid shift in online retail sales as a percentage of total retail. When lockdowns lifted, consumers returned to bricks and mortar shopping, which has shifted the demand to other industry types. In Melbourne’s southeast, we have seen a significant uptake in space from various manufacturers, while retailers, transport, and logistics providers have dominated the northwest.
Where has off-shore capital been coming from for bigger industrial assets and portfolios?
Domestic capital through super funds has been aggressively pricing bigger industrial assets and portfolios, particularly in Victoria, as the absentee land surcharge has disadvantaged foreign owners. What has the investment/divestment approach been from some of the bigger players like Goodman, Dexus, Charter Hall, and Centuria? Have there been any new entrants with aggressive acquisition plans? The portfolio management of large industrial REITS has been the strategic divestment of smaller non- core assets where pricing exceeds book valuation. Owner occupiers and private investors have been particularly acquisitive as exceeding book value is challenging when valuers are 1-2 quarters behind the market.
48 – October / November 2023
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