Melbourne's North industrial precinct has experienced a significant transformation in its occupier demand, land ownership and built-form landscape over recent years.
Melbourne’s Northern suburbs are within direct proximity to Melbourne International Airport, the CBD and surrounded by residential growth spots. These characteristics make it a pivotal link in Melbourne’s logistic, retail and e-commerce supply chains.
Historically, private investors and owner-occupiers have tightly held the Northern industrial market. However, the strong institutional appetite for industrial assets across the Eastern Australian seaboard is gaining momentum in Melbourne's North industrial market.
This article articulates the core metrics of Melbourne’s North industrial market, formulated by Colliers data.
Melbourne’s North 3,000sqm+ market remains predominately privately owned. As of Q1 2020, private investors and developers control 48 % of built form (2,317,189sqm), and 29% (1,373,086sqm) is retained by owner-occupiers. Institutions own the remaining 23% (1,044,099sqm).
In recent years institutions such as Growthpoint, Charter Hall, Stockland, Centuria and 151 Property have begun increasing their ownership presence in the market and undertaking significant development projects. Given the scarcity of large-scale landholdings to acquire in the North, institutional investors may look at exploring sale and leaseback acquisitions of owner-occupied assets above 8,000sqm. There are currently 59 owner-occupied assets above 8,000sqm in the North and a further 73 assets that are owned by private landlords.
The demand for A-Grade industrial facilities over 3,000sqm in Melbourne’s North remains strong, with an overall vacancy rate of 3.83%. There are zero vacancies in the 870,945sqm of 20,000sqm+ prime grade stock.
Somerton and Thomastown are the least exposed markets for A-Grade facilities. There are zero vacancies in each of the suburbs respective 651,850sqm and 102,099sqm prime industrial stock (3,000sqm+).
A-Grade vacancy is inflated to 18.27% in Epping at the conclusion of Q1 2020. The high rate is a result of several speculative developments recently becoming completed, including 38,764sqm that 151 Property has available in Biodiversity Business Park. Strong demand fundamentals should result in this surplus supply being promptly absorbed by the market. The strong occupier demand is corroborated by circa 171,000sqm of pre-lease commitments in the North over the last 12 months.
Melbourne’s North 3,000sqm+ Industrial Market has a B-Grade vacancy rate of 11.19%, rising to 21.56% for assets over 20,000sqm. This overstated vacancy is a result of Ford and Woolworths transitioning out of large-scale B-Grade assets. Their backfill has created a combined building vacancy of 176,000sqm across the Campbellfield and Broadmeadows markets. Both assets could be retro fitted to accommodate split tenancies with a variety of size offerings. In addition, a significant surplus land holding on either site will likely be utilised for future prime grade development to facilitate growing occupier demand.
Melbourne’s North 5,000sqm+ market currently has 142,000sqm of speculative development to be delivered within the next 12 months. This development is centred around the Epping market, being led by Frasers, Time and Place’s joint venture with LOGOS, and 151 Property.
In the upcoming two years, Melbourne's North existing industrial stock has the potential to offer 247,384sqm of A-Grade building space to the market, as a result of 15 assets above 10,000sqm having leases expiring. Seven buildings (104,531sqm) are a high chance of being offered to the market, due to the tenant's confirmation or expression of interest for expansion or consolidation. The remaining assets (142,853sqm) have tenants with renewals under negotiation or tenants who have stated intent to exercise their options throughout the next 12 months.
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Nick O’Brien, Damian Marinelli, and Siobhan O’Reilly specialise in monitoring market activity and detecting trends in Melbourne’s North industrial market. We achieve this objective by maintaining diligent records of the core industrial facilities in the market and monitoring all leasing, sale and development activity that occurs.
