Off the back of 2020, a year of record low vacancy rates and record levels of industrial leasing activity, speculative industrial real estate projects along the east coast have now topped one million square meters.
Industrial property has been outdoing Australia’s hot housing sector, which is representative of what experts are calling the pandemic property market. While industrial property is dealing with record low vacancies, the residential sector is seeing record high vacancies. A stark comparison of two markets within the same country.
The drive from the rise in online shopping flipped industrial property on its head, and as a result a wall of institutional capital is looking for a way into the booming sector, with an unprecedented return of 23 per cent last financial year.
Nationally the vacancy rates for industrial and logistics facilities (greater than 5000 square metres) fell to 2.8 per cent in the third quarter of 2021, which is down from 5.1 per cent at the same time in 2020.
As a result of this limited supply of high-quality industrial properties, businesses who previously relied on housing development, are now turning around to develop and deliver modern, sustainable prime-grade industrial real estate assets.
In fact, this demand for industrial space is forecast to remain well above the long-term average over the next five years, with gross demand expected to exceed approximately 3.8 million square metres by 2024.
So, this has naturally led to more development projects in the works than ever before for the industrial market. Rising developer confidence is showing a sharp turnaround from last year, when development projects were deferred due to uncertainty caused by the pandemic. Which is why developers are now pushing to speed up the delivery of their new industrial assets, and to keep up with the continuous demand.
In Sydney, more than 380,00 square metres of industrial developments are expected to be completed by next year, which is the highest level of industrial development in the area since 2008. While in Melbourne, almost 500,000 square metres of projected development are due to be completed.
More than half of the projected industrial developments being built in Melbourne are warehouses where construction has begun, with no tenants locked in. These will be especially important for an area where the vacancy rate for prime industrial real estate has fallen to just 1 per cent.
Now that there is much more stability throughout Australia’s largest capital cities, it is understandable that developers really want to speed up the construction of all of their new industrial developments. If the future projections are correct, it won’t necessarily matter if construction is completed in 2022, or 2024 the demand and low vacancy rates are still expected to stay put across Melbourne and Sydney.
Industrial property is currently the country’s most sought after property sector and is only expected to continue growing over the next five years.
So, will you be looking to get your hands on an industrial asset in the future?