VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Paul Callanan The industrial market has surpassed all other sectors of the market in recent years. COVID has accelerated E-Commerce and also demonstrated the importance of online business transactions to the local and global economy. Industrial vacancy rates are at an all-time low.
impacting the market, aside from low interest rates, is the actual availability of funding across all sectors of the market. Market participants are aware of upcoming interest rate rises but from a historical perspective these rates remain low and various funding institutions have a strong appetite to lend to all sectors of the market. The weight of capital (seeking higher returns), has been a key factor driving the development market. What do you see as some of the challenges that have faced buyers and sellers in the current market? Market conditions have been buoyant in recent months, while both buyers and sellers have benefitted from the strength of the market conditions, these groups always face challenges and potential headwinds at any given time. The development market has witnessed many reforms over the years, the latest being Windfall Gains Tax, which imposes a 50% tax on the value uplift of rezoned land. This has further fueled demand for zoned land within the growth boundaries of Victoria which is not reliant on a rezone. There will always be challenges, if it is not tax reform it may be a funding related issue, a pandemic or a war (to name a few), however the resilience of the property market across Australia has been proven historically. While there will always be short term challenges, the fundamentals remain strong, the long- term outlook based on future population and economic growth remains positive.
These low vacancy rates give confidence to purchasers that future rental growth will be captured (50% rental growth over the next 5 years has been forecasted). Future rental growth expectation is also driving down cap rates and in-turn increasing end values. Private equity and institutional funds are trying to increase their portfolio weighting to this sector, therefore the demand and sentiment for the industrial sector has never been stronger. It is worth noting that the residential and agricultural sectors are also performing well but no sector has witnessed the levels of growth seen in the industrial market. How has the Melbourne market performed and what are the key factors impacting the development market at this location? Purely from a residential greenfield development perspective, Melbourne is performing strongly given its affordability relative to Sydney, the level of infrastructure spend (average of $2.5 billion per year), jobs creation potential, government stimulus and its attractiveness as a destination for future immigration. One of the key factors
PAUL CALLANAN Director LAWD
44 –April / May 2022
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