THE PROPERTY DEVELOPMENT REVIEW
metres in 2024, but there is a possibly it may be put on pause due to this slowing in demand. While there is still some un-met demand, much of this will be covered with pre-committed space. We expect that not all the historically high amount of new space coming on the market in 2023 and 2024 will be absorbed and vacancy levels will rise. This is not necessarily a problem as Sydney, in particular, is suffering from a lack of choice in space in the market. We also expect that some of the mooted space for 2024 will not come on the market, given how rapidly industrial developers can respond and consequently any increase in vacant space will be moderate. Looking at present vacancy rates it will be returning us to historic averages in percentage terms, providing some liquidity and choice in the leasing market again after a period of scarcity. The industrial sector has an ability to quickly turn on, and off, supply. Of the forecast supply for 2024, 28% (811,000sq m) is mooted and can be delayed. Another 409,282sq m is a historically large amount of owner-occupied construction (a response to the lack of availability in recent years), while a further 945,857sq m is pre-committed - leaving only 755,139 sqm speculative. Whilst this is substantial, we must remember where we are coming from – that is, with historically low vacancy rates. Historically there has been 1.5 million sq m of space on the market, and currently there is barely 500,000sq m. We may see a return to ‘normal’ availability, as long as the tap gets turned off quickly and the development cycle pauses for breath. With land values now stable, and rental growth beginning to slow, this may be exactly what is happening.
than doubling in value as developers rushed to grab land, with a FOMO hitting the market. Similarly average rents rose by over 40% in Melbourne and Brisbane and over 70% in Sydney since the pandemic began.
What has happened to the supply pipeline? The boom in industrial property made developing industrial space a profitable option, which resulted in a rapid rise in the development pipeline as rising rents (and initially falling yields) more than covered the cost of rising land values, and more recently rising construction costs. New completions had been slowly edging up from around 1 million square metres per year, broadly 40:40:20 split between Sydney Melbourne and Brisbane, with new supply ratcheting up markedly. From 2020-2023 Melbourne will have added over 4.1 million square metres of space alone. Average completions for the Eastern Seaboard are now well over 2 million square metres per annum, and with Brisbane responding with more space, heading towards 3 million square metres a year. The initial increase in completions was quickly absorbed and vacant space continued to decline, but vacant industrial space is now starting to rise as demand has slowed. The Australian economy is slowing and e-tailing’s growth has flatlined, demonstrating that the expansion of online spending will be far more gradual than initially thought and demand for space will not grow as rapidly. Could new supply be put on hold? After several very strong years of growth, both in demand and supply, it is clear that demand is moderating to some extent in the light of a slowing economy. New supply is forecast to continue to expand to nearly 3 million square
October / November 2023 – 7
Powered by FlippingBook