Colliers International expects rentail pressure to grow as land supply shortage
Land values in hot spots across Melbourne’s key industrial markets have spiked in the first quarter of 2018 on the back of increased pressure on supply.
According to Colliers International research, industrial land values in Melbourne’s east recorded strong growth over the first quarter of 2018, well outperforming other major precincts over this period.
Colliers International’s latest Industrial Research & Forecast Report found that, on an annual basis, land values appreciated by 39% in the South-East, with the Outer East sub-market also experiencing double digit growth of 17% over the same period.
“The constraint of the land supply shortage in the South-East sub-market, in combination with the increasingly scarce development and value-add opportunities with most major sites owned by developers, have placed significant upwards pressure on land prices,” Gordon Code, Colliers International Manager – Industrial, said. “For this reason, we expect rental growth will follow over 2018, and landlords will capitalise on the strong demand and limited supply.
“There is around 161,986sqm of industrial land to be delivered over 2018, however much of this is in the early stages of development. Englobo land demand continues to escalate as zoned land supply remains scarce on the back of pre-lease activity and strong land sales.
“We expect the area to continue to grow in popularity among investors and developers following an increase in infrastructure investment in the region, including the new VicRoads-funded Mordialloc bypass.”
Mr Code said land in Keysborough in particular had increased significantly from around $320/sqm at the beginning of 2017 to more than $550/sqm currently.
“For example, during Stage 8 land sales at The Key Industrial Park, we received 131 offers for the 16 available lots, which all sold for more than $450/sqm in August last year,” he said. “Until April, 2018 has seen no serviced retail industrial on-market land opportunities in the south east.
“With The Key Industrial Park now nearing completion, Frasers Property is extending its portfolio with the recent acquisition of 27ha land parcel for $19million earmarked for an industrial estate, Braeside Estate.
“Expected to commence construction by mid-2019, Braeside Estate is well-located in one of the highly sought-after areas in Braeside within Melbourne’s South East market and will cater to the growing demand for industrial land.
“Colliers International launched a sales campaign for this four-lot subdivision this week, following most recent land sales in the precinct recorded at circa $500/sqm.”
In the northern industrial market, land values have risen by 7.5% over the first quarter of 2018 and are now averaging $288/sqm after remaining stagnant since December 2016.
“This growth is underpinned by the lack of prime grade stock and underlying demand competition from food groups, logistics and packaging industries seeking sites to expand their manufacturing footprint,” Nick Saunders, Colliers International Director of Industrial, said.
A prime example was D’Orsogna striking a $60million warehouse deal with MAB Corp and joint-venture Gibson Property Corporation for a new 10,858sqm manufacturing site at Merrifield Business Park. D’Orsogna plans to expand its products to the SouthEast Asian market, and will be operating in a newly technology-designed facility due to complete towards the end of 2018.
“Emerging businesses catering to local and export markets are also further boosting owner-occupier activity for established stock, as locations with strong transport infrastructure remain attractive,” Mr Saunders said.
Highly constrained supply, particularly prime grade assets, in the Inner-West caused average land values in this booming industrial market to increase by 4% over Q1 2018 to $260/sqm.
“This growth was underpinned by strong demand from tenants looking to benefit from significant road upgrades including the West Gate tunnel Project that will significantly improve access to the Port of Melbourne,” Mr Saunders said.
“Only 17% (or 117,123 sqm) is recorded in the development supply pipeline to be delivered in the West sub-market over 2018. We expect this will lead to further appreciation in land values in this market.”