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Regional industrial and logistics markets outstrip capital cities

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Nationwide, the industrial and logistics sector has been the best performing segment in the commercial property market, but regionally, this segment has outperformed the capital cities. This outperformance has been led by a record level of internal migration to regional areas, which has supported economic activity and warehouse space requirements. The outperformance includes:

  • Rental growth: Prime rental growth in major regional centres along the East Coast measured 8.3% over the 12 months to June 2021 and compares to growth of 1.2% for the capital cities over the same period.
  • Yields: Prime yields have compressed by 105 basis points over the past 12 months in the major regional centres which was on par with the 107 basis points recorded in capital city markets. However, the rate of compression accelerated in H1 2021 in capital city markets, and as a result, a period of catch up is expected over the next 12 months.
  • Capital Values: A combination of strong rental growth and significant levels of yield compression has led to prime capital value growth of 27.2% across the key East Coast regional industrial markets. This level of growth exceeded the 25.3% recorded in capital city markets over the same period while there were select regional markets such as Geelong, Gold Coast, and Sunshine Coast, which exceeded this growth rate.

Luke Crawford, Director, Research at Colliers said: “Regional economies have been the standout performers over the past year, and this is reflected in the strong local industrial markets. Fundamentals such as e-commerce, infrastructure investment, and population growth have driven occupier demand in these markets, while a re-weighting of capital towards the sector has pushed some buyers further afield in search of opportunities, and regional centres have been a beneficiary of this.

While many market drivers are the same nationally, such as heightened e-commerce occupancy demand combined with low vacancy rates, several key trends are driving the regional boom.

  • Regional economies grew by 1.0% in 2020, while capital city economies shrunk by 0.7% in 2020.
  • The rate of migration into regional areas doubled over the last 12 months with net 44,674 moving out of the capital cities.
  • There has been an acceleration in the decentralisation of business supply chains and operations. Colliers’ enquiry data shows that a large share of warehouse demand for regional centres is coming from occupiers currently located elsewhere.
  • The heightened demand for regional warehouse space over the last 18 months has led to a shortage in supply, with the regional vacancy rates sitting well under the national average of 3.5%. Vacancy rates in the key regional centres sit within the 2.0-3.0% range, while many major suburbs have a vacancy rate under 2.0%.
  • Approximately $250 billion in transport infrastructure projects are committed or underway nationally, while the pipeline for regional East Coast markets exceeds $80 billion. Once completed, these projects will provide access to road, rail, port and air infrastructure, further enhancing regional connectivity.
  • There has been an overall re-weighting of capital expenditure to the industrial and logistics sector. The tightly held nature of the capital city markets means the weight of capital seeking opportunities in major regional centres has grown significantly.

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Luke Crawford

Director | Research

Sydney CBD

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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