Shortage of industrial space in Melbourne’s west as demand continues

Strong pre-lease activity leads to low levels of supply in 2016: Colliers International

A shortage of serviced industrial land in Melbourne’s west is likely to spur a decrease in incentives and an uplift in rents in the pre-lease market as demand for space in one of Australia’s most sought after industrial precincts continues.

According to Colliers International, the outstanding strength of pre-lease activity in Melbourne’s west in 2015 has seen a significant shortage of space available in the current market.

“The 2015 take up in the western pre-lease market was the greatest that we’ve seen since the early 2000s, with approximately 270,000sqm pre-leased in Melbourne’s west last year including the relocations of the national distribution centres for Target, The Reject Shop and CEVA,” Nick Saunders, Colliers International Director of Industrial, said.

“With these recent commitments, we’ve seen the supply of serviced industrial land in this market dry up considerably, which in turn will see the pre-lease market turn more in favour of landlords over the coming six to 12 months – incentives will decrease, and off the back of this we are likely to see some uplift in rents.

“The lower levels of supply have been met by continued strong demand, particularly from local buildings and small freight companies looking to co-locate in the logistics capital of Melbourne.

For this reason, the major institutions are now looking to replenish their supply pipelines.

“Demand will continue throughout the second half of the year and into 2017, further stimulated by major infrastructure developments throughout the west including the Western Distributor, road widenings and port upgrades."

Mr Saunders said there were currently strong levels of leasing enquiry in the western industrial market overall.

“Across the board, sentiment in the west is very positive in the leasing market at present,” he said. “Our surveys of tenants who have relocated in the last two years have found 62% moved premises in order to accommodate business expansion, which is an overwhelmingly positive sign for the industrial sector. Only 11% of tenants were consolidating two or more existing tenancies.

“Tenant demand also tended to come from within the local area, with 67% of enquiry coming from tenants who are already located in the west precinct."

According to new Colliers International research, there was currently just over 580,000sqm of vacancy across existing stock in Melbourne’s west, across 71 buildings. The majority of the vacancy was within secondary grade buildings, which generally had a longer lease-up time than A Grade stock, considering the relative affordability of A Grade rents in the precinct.

Take up of space in the western industrial market throughout 2015 was concentrated in the 5,000-10,000sqm size range. Almost 75% of all industrial leases signed in the West were for warehouses/facilities in this size bracket and there was a fairly even split in leasing across A and B Grade properties.

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