Demand broadens and brings down vacancy in Perth industrial market

Colliers sells industrial portfolios valued at $57 million in quarter three.

More signs of activity are emerging in the holding pattern that has dominated WA’s industrial market with vacancies for bigger properties heading lower, new supply at a robust level and sales totaling $404.4 million for the first three quarters of 2017.

Colliers International’s research reports strong demand for industrial properties larger than 2,000sqm in the nine months to September resulting in the vacancy falling to 8.3 per cent from 9.7 per cent in January.

The vacancy for buildings larger than 10,000sqm fell to 4.4 per cent from 6.7 per cent in January while for industrial buildings between 2000sqm and 5000sqm the vacancy fell a more modest four percentage points to 15.0 per cent from 15.4 per cent.

Colliers International Director Industrial Agency Raj Singh said the WA vacancy declines were the first decisive falls in three years and reflected demand for industrial space from a cross section of the economy.

“Demand is coming from transport and logistic companies, chemical manufacturers, hardware suppliers, auto accessory suppliers and retailers connected to residential builders and not just from mining and oil companies,” Mr Singh said.

Despite the encouraging absorption, Perth still has 796,375sqm of vacant industrial space compared with 891,190sqm at the start of 2017.

Although new supply is slowing, the report found developers were still bringing industrial property to market with much of the new supply pre-committed.

In the greater than 2000sqm category, 165,795sqm of space was built in the metropolitan area in the past nine months and another 35,645sqm is expected to be completed before the year ends to bring the 2017 total to 201,440sqm, down from 248,965sqm in 2016.

Mr Singh also said the research also shows the extent of the flight to quality underway in Perth’s industrial market.

“Prime Space declined 91,055sqm in the nine months since January while secondary grade vacancy declined just 7045sqm,” he said.

Strong demand for leased investment-grade assets drove transactions and portfolio divestments.

Excluding transactions under $5 million, there were 26 industrial investment sales totaling $400.4 million between January and September, compared with 33 sales valued at $359.3 million in the same period in 2016.

Mr Singh said quarter three industrial sales by Colliers International included two portfolio sales purchased by Ascot Capital.

The WA property developer and syndicator paid $31.5 million for Cope Sensitive Freight’s ‘Secure Seven’ portfolio and $25.5 million for three leased Wangara properties.

“Demand from local, national and international buyers remains very strong for investment-grade industrial property and inquiries are increasing in the leasing and owner-occupier market so we are cautiously optimistic the industrial market has started to stabilise,” he said.

The research report noted that competition for tenants resulted in average rents for prime warehouses in Perth contracting to between $68/sqm and $85/sqm, a fall of 1.6 per cent in the year to September.

After falling 7.1 per cent year-on-year, secondary face rents were stable between $55/sqm and $75/sqm in the year to September.

Colliers International Senior Research Analyst Quyen Quach said there was a growing perception that demand for space was starting to recover in WA’s industrial market, after the volatility that followed the end of the mining boom.

“Supply for the next two years looks likely to be constrained by recent soft demand, however, unlike the office market this can shift quickly as sheds are quick to build and there is growing optimism that economic conditions, if not bottoming, have stabilized,” Mr Quach said.

“This has the potential to accelerate absorption of existing vacancies, leading to increased pressure for additional space as the economy recovers.”

The report also examined conditions in Perth’s three main metropolitan industrial markets.

In the eastern industrial market which holds Perth most established industrial land, the vacancy fell to 7.0 per cent from 9.0 per cent in the first three quarters while face rents were stable within a range of $75/sqm to $85/sqm. However strong supply of 144,585sqm since the start of 2016 drove a 5.8 per cent fall in average rents since September, 2016.

Vacancy in the north was 8.9 per cent at the end of September with 102,515sqm of vacant space, up from 91,810sqm in January. Face rents for prime warehouse space was unchanged since the beginning of 2017 at $70/sqm to $85/sqm but was 3.13 per cent lower year-on-year.

Vacancy fell by 9,140sqm in the south to 352,230sqm to give a vacancy rate of 9.9 per cent, down from 10.7 per cent in January. The south also recorded the most new supply with approximately 229,945sqm of warehouse space (larger than 2000sqm) added since the start of 2016. This led to a 3.2 per cent contraction in average face rents which ranged from $68/sqm and $83/sqm in the nine months to September. 

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