Issue 29 | The Property Development Review

Market Overview - VIC

Gavin Dumas Crabtrees

Q. Howwould you evaluate the impact of the past eighteen months in your local market? A. We have seen very strong asset value growth and increasing rental rates as demand outstrips supply; the volume of buyer inquiry has been extraordinary, inmany cases 3-5 fold increases of inquiry over pre-COVID conditions. Owner Occupiers have also regularly been forced to lease premises due to the lack of sale opportunities tomaintain the growth of their businesses when their original desire was to purchase and the leasingmarket is also enjoying strong rental growth as limited supply meets strong demand. Q. What are your expectations for the commercial property market over the next twelve months? A. We expect strong demand to continue frombuyers but also tenants resulting in continued low vacancy rates, this in turn should underpin and limit any impact on both rental growth and price growth fromany interest rate increases or other macro economic factors. With immigration/migration expected to increase throughout 2022 and into 2023, demandwithin the domestic economy will again be underpinned and strengthened further which again will directly impact industrial property in a positive way; a bigger population requires more dwellings, consumer goods, food and etc which all originate in one formor another via the industrial property sector. Q. Talk us through the most significant deals you have transacted thus far in 2021. A. Some highlight deals have been the negotiation of a purpose built office&warehouse facility for a private Owner Occupier at 70-72 National Drive Pakenhamon a substantial site of 24,766 sqm with the premises totalling 14,153 sqmwhich would be one of the largest, if not the largest pre-commitment secured in the past 12 months in the outer suburban industrial market. Other highlights and a note worthy sale was 1 & 2 Steele Court Mentone which was an industrial 1 zoned parcel of land of 9,084 sqm that was sold for $9,090,000 in August 2021 having been previously sold only 9months earlier in December 2019 for $5,050,000 showing the extraordinary price growth for industrial land in the past 12-18months.

Q. What are the key market trends occurring throughout 2021 in your region? A. We have seen very strong competition for industrial property and logistics assets, driven in particular by Owner Occupiers. When combinedwith an extremely low vacancy rates, price growth has been excellent and choice for buyers limted. Q. What have been the fundamental drivers of demand amongst buyers? A. Super low interest rates have dramatically reduced servicing costs for buyers and coupledwith commentary from the RBA that these conditions will be in play for an extended period has provided buyers with confidence and has been themain driver of demand for commercial property assets and in particular industrial facilities. Added to this has been the impact of COVIDwhich has accelerated the growth of on-line retail businesses and demand for warehousing and logistics facilities resulting in historically low vacancy rates. Q. Reflecting on recent transactions, what has been the profile of buyers and has this shifted from previous years? A. Whilst Private Investors have always been active participants in Melbourne’s suburban industrial market, they have been compre- hensively out bid inmany instances by Owner Occupiers who have been prepared to pay substantial premiums to secure premises. Clearly there is pressure on businesses constrained by a lack of space and lack of opportunity which has resulted in Owner Occupiers being the dominant buyer for most industrial assets under $10mill. Additionally, Institutional buyers have now entered the sub $20mill market providing additional competition for high net worth private, family groups & SME’s driving yields into further contraction and unprecedented territory. Q. What types of assets are most in-demand given the current environment? A. Industrial Industrial Industrial – both investors and Owner Occupiers are providing demand; investors understand the industrial sector provides the security of investing in a tangible asset, being the land and bricks &mortar with a decent yield, whilst Owner Occupiers are competing for space to run and grow their enterprises. Modern facilities close tomajor road networks aremost desirable but the lack of supply and low vacancy rates has necessitated occupiers compromise their desire for a preferred location and accept re-locating to outer suburban locations they would not have originally entertained or to take up older facilities with compromised facilities simply to allowgrowth for their businesses.


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