The contraction in the mining resource sector has opened the way for a broader focus in Perth’s industrial market and new demand for facilities for emerging service sectors, education, technology and small business.
With pockets of high vacancy left by downsizing businesses, and in some core markets lower rents and land values, the industrial market is entering a transition phase where it will have to adapt to meet the needs of new occupiers, according to Colliers International.
Colliers International director industrial Raj Singh said the occupier shift away from logistics and fabrication that supported the mining industry and toward growth prospects in emerging industries was already underway.
“Accompanying this shift there will be more demand for design and construct projects, significant upgrades of the large number of older industrial facilities and also the opportunity for a well-timed entrance into the market for owner-occupiers,” Mr Singh said.
“WA’s economy has gone through a one in 100 year cycle and now there is a shift back to a normal market, not unlike the conditions in cities without mining as a major employer,” he said.
“The good news is that unlike the surge of building that occurred in the office market, there is little by way of new stock additions and supply and vacancy is gradually being absorbed as small to medium-sized businesses and new industries take advantage of lower accommodation costs in core areas.”
According to the latest research from Colliers International’s Research and Urban Economics division, the vacancy rate for the first half of 2016 was 10.3 per cent in Perth’s southern industrial precinct, 9.2 per cent in the north and 7.6 per cent in the eastern industrial precinct, Perth’s biggest industrial area.
Land values have been in a gradual decline since early 2014 but have moderated in recent quarters and for core locations are now sitting between $375-$450/sqm in the South, $350-$525/sqm in the north and $325-$500/sqm in the east. Further afield, price movement has been more substantial, creating affordable options for industries not requiring inner core locations.
Mr Singh said many of the vacant C-grade properties were located in Welshpool and Kewdale and were ready to be converted into modern industrial complexes.
“Businesses are looking, they want modern facilities with efficiencies that will save them money but with limited stock there are opportunities for developers to customise new facilities,” he said.
“Logistics will be more and more important to WA’s economy and will include distribution centres like the new Jandakot facility for Aldi, shared distribution centres to support growth in online retailers and manufacturing plants to support WA’s emerging agribusiness sector.”
Despite the changing market, there is still strong investment demand for well leased, quality industrial properties.
According to the IPD Australian Quarterly Digest, WA’s industrial property sector generated an 8.6% income return in 2015, outstripping the national industrial property market’s income return of 7.6%.
Colliers International Director Industrial Projects Wayne Chorley said income returns were a primary investor focus and were supporting acquisition decisions with Charter Hall and 360 Capital adding to their WA industrial portfolio in the past year.
“Demand is very strong for leased, A-grade industrial property and far exceeds supply in WA’s tightly held market which is dominated by high net worth individuals, developers and investors who are all long-term holders,” Mr Chorley said.
According to Mr Singh, market conditions were also lining up for sale and lease back transactions.
“Competition for well leased properties and their limited supply is driving yield compression which has also made sale and lease back transactions an appealing option for businesses that want to free up capital,” he said.