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2021 heralds record performance in the Australian industrial and logistics sector

Investment volumes have already reached $12 billion this year

Surpassing the previous record set back in 1988, the Australian industrial and logistics sector has completed its best year on record providing a total return of 23.2% this year to June 2021. Underpinned by the continued shift to online retail, and the requirements for big box distribution centres and last mile hubs close to the end consumer, the industrial and logistics boom has also delivered leasing and investment records.

“Leasing demand is forecast to well exceed four million sqm for the 2021 calendar year, up from the 3.3 million sqm in 2020, which was also a record, while investment volumes have already reached $12 billion. This is well above the previous record high of $7 billion set back in 2016,” Luke Crawford, Colliers Director of Industrial Research, explains.

As reported in Colliers’ Industrial Research and Forecast Report for the second half of 2021, the advent of Covid-19, and the flow-on effect from lockdown management strategies, led to an acceleration in online shopping adoption by five years in 2020. And while this acceleration paused early 2021, the lockdown periods in NSW and Victoria this year re-ignited accelerated online sales growth, increasing by almost 30% year-on-year to August 2021. Online sales now represent 13.9% of total retail sales and Colliers’ forecasts suggest this will grow to approximately 18% by 2025.

“The sector’s outlook continues to be positive, but potential headwinds that may impact performance in 2022 could stem from low levels of population growth and the weaker than expected economic recovery given recent lockdown measures. Nonetheless, economic growth is forecast to total 1.0% for the 2021 calendar year before increasing to 7.4% in 2022,” Mr Crawford says.

With record leasing demand recorded, running at over 3.7 million sqm leased nationally in the first three quarters of 2021 (>5,000 sqm), demand remains most pronounced for prime space with substantial demand recorded for pre-lease and speculative space. Over 1.5 million sqm of take-up in 2021 has stemmed from pre-lease or speculative developments, representing 41% of total demand. The Sydney and Melbourne markets have underpinned this strong result, while there has also been a sharp rise in leasing activity in the Brisbane and Adelaide markets, which reflects the improvement in local economic conditions

Vacancy rates continue to fall swiftly, with national vacancy rates for facilities >5,000 sqm falling to 2.8% in Q3 2021 from 3.5% in Q2 2021 and 5.1% in Q3 2020. The fall in vacancy rates over the Q3 period was underpinned by a large fall in the Brisbane market, while vacancies in Sydney and Melbourne remain at, or close to, historic lows. This pressure on available industrial space has led to a surge in speculative developments.

“Propelled by record leasing demand, developers and institutional groups have progressed speculative developments, there is currently over one million sqm of speculative developments under construction along the East Coast, 30% of which will reach completion in Q4 2021, and the balance will complete in 2022,” Mr Crawford says. “Melbourne accounts for the largest share of speculative space under construction at 52% of the national total, followed by Sydney at 35%. For Brisbane, speculative space due to be delivered in 2021 has increased 57% on the levels recorded in 2020 and is expected to accelerate further in 2022.”

Nationally, industrial completions are forecast to total 2.05 million sqm in 2021, before picking up to 2.4 million sqm in 2022. Supply will remain dominated by the Melbourne market, while Sydney is expected to see a large rise in completions from 2022 given land availability within the Mamre Road Precinct and several large-scale developments which have recently commenced. The tight supply levels have increased prime net face rents nationally with a 4.3% year-on-year increase to Q3 2021, while growth in the secondary market was higher at 5.2% over the same period.

There has been a significant re-weighting of capital towards the industrial and logistics sector with over $12 billion in industrial and logistics transactions occurring in the nine months to September in 2021 (>$10 million), when compared to $5.5 billion for the entire 2020 calendar year. And as Gavin Bishop, Head of Industrial Capital Markets, explains, there are significant levels of domestic and offshore capital still looking to enter the Australian industrial market.

This year has been the year of portfolio transactions with $8.4 billion trading from portfolios so far in 2021, representing 70% of total investment activity,” Mr Bishop says. “And while $12 billion is a record year of investment within the sector, approximately $40-50 billion of capital looking to enter the sector remains. This is creating significant competition for assets and major portfolios from both domestic and offshore capital.”

“These intense levels of competition for industrial assets and limited levels of supply in key markets, has led to many institutional groups adopting new investment approaches, such as a build-to-core strategy.”

In Colliers’ view, yield compression is expected to continue until mid-2022 before stabilising thereafter. By this point, average prime yields are expected to sit closer to 3.5% in Sydney and Melbourne, while Brisbane will be closer to 4.0%. For Adelaide and Perth, sub 5.0% yields are expected to become more prevalent.


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Luke Crawford

Director | Research

Sydney

Luke has 10 years’ experience in property research and real estate advisory, providing strategic advice and research to private, government and listed groups. Luke currently heads up the national industrial and logistics research function at Colliers, where he provides high quality research on the trends impacting the sector to both internal business lines and clients.

Luke has provided tailored and strategic industrial and logistics research to groups including Charter Hall, Mapletree, ESR, Ascendas, Centennial and ARA.

Prior to joining Colliers International, Luke has held roles within the Real Estate Advisory Services (REAS) division at KPMG and the Research and Consultancy team at Knight Frank.

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Gavin Bishop

Managing Director | Industrial

Sydney

Gavin is the Managing Director of Industrial & Head of Industrial Capital Markets Australia at Colliers, where he has been specialising in industrial property for 21+ years. Based in the Sydney CBD Head Office, Gavin manages a highly successful team of over 120 staff across every state & territory nationally in key industrial and logistics precincts.

Gavin specialises in the national industrial capital markets and has excellent relationships across a broad spectrum of institutional, international and private investors. Over Gavin’s time with Colliers, he has completed hundreds of deals in industrial property, settling over $14 billion in his career to date, and leasing over 400,000sqm. Gavin enjoys a 75% market share of industrial capital markets share in NSW.

Gavin has worked extensively in the sale of industrial portfolios of up to 30 assets in one portfolio. Gavin and his team have sold 24/34 of all industrial portfolios in Australia over the last five years, including the AMP Portfolio ($105m), J.P. Morgan Portfolio ($250m), Altis Portfolio ($342.5m), Qantas Portfolio ($802m) and GIC/Australand Portfolio ($1.073b).

Some major distribution centre sales that Gavin and his team have been involved in over the last two years include, the Calibre, Eastern Creek ($130.1 million), 1 Eucalyptus Place, Eastern Creek ($90.5 million), 3 Roberts Road, Eastern Creek ($253 millions) and 6-20 Clunies Ross Street, Greystanes ($76.6 million)

Gavin has focused on building deep relationships with his clients, providing the latest in-depth information about logistics markets across Australia, which in line with his extensive track record, has seen Gavin achieve record-breaking results for his clients.

Gavin is a long-standing member of the Colliers team, having joined in 2000 as a graduate valuer. Gavin commenced with Colliers as part of their Scholarship Program and he was fortunate to work across multiple service lines and locations across Sydney, before settling in the Industrial team in Sydney South in 2001. Over the last 20 years, Gavin has progressed through the industrial business including managing the Sydney South and Sydney South West offices, before moving into the NSW State Product Director for Industrial in 2010.

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