THE PROPERTY DEVELOPMENT REVIEW
Are pre-lease transactions accelerating industrial supply, and how have increased building costs impacted new supply coming to market? Pre-lease transactions in 2022 were challenging for developers and tenants, as rising construction costs and spiking land values left risk in the development feasibility. However, as construction prices have started to settle and developers have changed their preference to secure long leases with strong covenants, we can expect pre-leases to be back in favour in 2024.
What have been some of the more significant industrial transactions in 2023?
Colliers sold 25 Tullamarine Park Road, Tullamarine to a local owner occupier. This transaction represents a 51% uplift in value in 16 months since purchasing, with TKCorp restructuring the lease profile to allow for the permit-approved development to proceed whilst ensuring the sales process was conducted in tandem, given the ongoing demand in Melbourne’s North to acquire infill sites of this scale. A significant northern leasing transaction was 28-32 Sky Road East Tullamarine Comprising of 12,086sqm of GLA, the property was committed 12 months prior to vacancy by multi national Freight Forwarder Navia Freight , who have significantly expanded their footprint within Melbourne’s North. On the sale side, transactions to note are 25 Glasscocks Road in Dandenong South, a brand-new 13,000sqm facility sold to an undisclosed national hardware distribution and manufacturer for $ 31.5 million. Close by on 54-66 Smeaton Avenue, Dandenong South, Colliers also transacted a 7,000sqm modern facility, achieving a record price/sqm as it sold for $ 17.52 million.
What types of industrial assets are in most demand from a) owner-occupiers and b) investors?
Owner occupiers are focused on existing vacant possession opportunities to occupy immediately or facilities with short-term lease tails, which provides time to plan for relocation/consolidation at the end of the tenure. Investors are focused on value-added investment opportunities, where there is a chance to access reversions in below-market rents. Have you seen a shift in developers moving away from residential projects to industrial, given challenges around building costs? Any other industrial trends pertaining to the industrial sector? Industrial development in the larger size bracket is becoming increasingly institutionalised and sophisticated, while smaller industrial developments, like infill strata projects, have been popular with residential developers looking to enter the buoyant sector. What is your outlook for 2024 in the industrial space? In 2024, we expect continued growth and investment in the industrial sector as demand will continue to outstrip supply. Some occupiers will actively seek ways to manage their core market expenses and look into peripheral markets where land values are more cost-efficient. At the same time, developers will look to purchase land in these locations to manage this growing trend.
October / November 2023 – 49
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