Lower demand leaves Perth with two-speed industrial property market

The bright spot: strong competition for leased investment sales.

A two-speed market has emerged for industrial property in Perth with the sector confronting the high vacancies left by the mining downturn and at the same time, strong competition from investors to buy leased investment properties.

According to Colliers International’s research division, vacancies have gradually increased across Perth’s industrial market and there has been a steady decline in the number of industrial property sales.

Colliers International’s latest vacancy survey of Perth’s industrial properties bigger than 2000sqm shows 900,000sqm of empty space across 174 properties, an overall vacancy rate of 9.7 per cent.

In the 2000sqm to 5000sqm category, the vacancy rate climbed to 15.4 per cent and in the 5000sqm to 10,000sqm, there was a 9.3 per cent vacancy.

For industrial properties bigger than 10,000sqm there were 16 empty properties and a vacancy of 6.7 per cent.

In line with weaker demand, average face rents for industrial warehouse space in Perth have fallen to $80-$90/sqm for A-grade and $60-$80/sqm for B-grade.

The downturn in leasing activity and sales is also clear in year-on-year comparisons.

In 2016, leases for industrial spaces greater than 2000sqm in Perth amounted to 300,000sqm, down from just under 400,000sqm in 2015 and around 600,000sqm at the peak of the mining boom.

Overall the number of industrial transactions in Perth fell from 763 in 2015 to 534 in 2016 while the value of sales fell 40 per cent from $1.54 billion in 2015 to $916.5 million in 2016.

Colliers International Director Industrial Agency Raj Singh said the downturn in transactions and leased space reflects the departure and contraction of businesses servicing the resource sector and the winding down of WA’s construction cycle.

“The industrial market is now in transition and is opening up good opportunities for small and medium- sized service sector industries to obtain affordable, well located space and bed down business planning for growth into the next economic cycle,” Mr Singh said.

“In many cases, rental opportunities in the market are creating compelling arguments to lease and not buy in the short to medium-term.

“Similarly, for would-be owners, softening land pricing has opened the way for redevelopment and design and construct opportunities.”

According to a forecast by Deloitte Access Economics, WA’s economic cycle may be in the early stages of a recovery by 2019 with improving investment fundamentals, population growth and associated employment growth.

“The current housing/accommodation oversupply may have receded by then which may see a resurgence in the construction sector around the same time,” Mr Singh said.

In contrast to the falling tenant demand, reports from across the industry indicate strong competition and multiple bids to buy leased industrial properties.

“Investors are still active but with an uncertain macro environment they are seeking the security of income, which has also become a major factor in obtaining lending support from banks.”

In the last quarter of 2016, Colliers sold seven industrial properties valued at $190 million in off-market transactions with yields ranging from 6.17 to 9.16 per cent.

“These properties had 12 to 15-year leases, good underlying land values and locations and there were multiple bids from overseas investors, institutions and local investors who wanted to add these assets to their portfolios,” Mr Singh said.

Share this Page
Saved Properties
Remove All
You have no saved properties. Click the 'save' button associated with a property listing to see it displayed here.