Industrial Trends
WILL THE INDUSTRIAL DEVELOPMENT PIPELINE BE PUT ON PAUSE?
By James Templeton National Head-Industrial - Knight Frank
James Templeton Partner, Managing Director, Victoria & National Head of Industrial Logistics – Knight Frank Australia
2023, vacant space across the Eastern Seaboard had fallen by 75% compared to Q1 2020 as the pandemic started, with total available space of 441,000sq m available across the three main cities of Sydney, Melbourne and Brisbane, down from 2,406,000sq m. Vacancy rates fell from their usual 6-8% range to sub 1% in areas, with less than 40,000 sqm available in Sydney at one point. The large increase in demand incorporated all quality of space as a rush for accommodation took place, resulting in both prime and secondary space being in very short supply. The short supply combined with high demand led to rapid and historically extreme rises in both rents and land values as landlords and developers responded to the rapid changes in the markets. Industrial land values have risen by around 50% in the last 3 years, with some large lot sizes in Sydney more
Over the past few years we saw a boom in the industrial property market due to the huge growth in online retailing during COVID. There was a chronic lack of supply to cater for the surging occupier demand at this time, and developers responded with a rapid rise in the development pipeline. However, with the market now having stabilised, with vacant space ticking up since the start of the year, we may now see the development cycle pause for breath nationally until demand catches up again. Let’s look back to where we were, compared to where we are now. Demand surged during the pandemic leading to low supply, and extreme rises in rents and land values. We all know of the step change that occurred in requirements for industrial space as a result of the pandemic. The initial turbocharging of the consumer move to e-tailing saw its share of the market rise from below 10% to briefly 15% of all retail sales, and 25% of non-food sales. This caused a massive increase in warehousing and general logistics requirements. Following on from this the issue of supply chain problems saw a trend of reshoring, which only continued to increase demand for industrial space. The unprecedented and continued increase in demand for industrial space in Australia saw availability dwindle. By Q1
6 – October / November 2023
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