Industrial, Logistics Rents Continue to Climb

Industrial and logistic rents are continuing to rise across Australia, underpinned by extremely low vacancy rates.

According to new data from CBRE, the average net face rents for super prime assets in Sydney jumped by another 7.5 per cent in 2023’s first quarter, bringing the year-on-year growth rate to 38.1 per cent—the strongest in the country.

Perth followed with 30 per cent year-on-year growth after a 4.0 per cent rental hike in the first quarter.

Rents have also accelerated in Melbourne, following a similar trajectory to the Sydney market during 2022, CBRE said.

The Victorian capital experienced 5.2 per cent average rental growth in the quarter, taking the year-on-year growth to 23.4 per cent.

Effective rental growth in Melbourne was even higher at 8.3 per vent, as incentives fell, taking year-on-year growth to 38.3 per cent. 

CBRE Australian head of industrial and logistics research Sass J-Baleh, said that for the first time, average rents in Sydney have surpassed $200 per square metre super prime grade assets, reaching $215 per square metre.

“Strong rental growth has also been observed in Melbourne, however, this is off a low base and the city’s average super prime rent remains quite attractive for occupiers at $119 per square metre—the lowest in the country.”

CBRE industrial and logistics regional director Cameron Grier said delays caused by planning issues had exacerbated the rental situation in Sydney, with the vacancy rate shrinking to less than industrial and logistics 0.5 per cent, the lowest levels globally.

“The severe undersupply of Sydney stock is due to high take-up in 2021-2022 and supply issues caused by inclement weather and planning approvals, which has super charged rent,” he said.

▲ Vacancy rates driving rent rises: CBRE’s Sass J-Baleh and Cameron Grier.

“For every building available there are three to five users fighting for it and the person who signs first, wins.

“The only thing that will solve this is more supply and that won’t happen until planning authorities can turn around approvals in a speedier way.”

Based on the current Sydney pipeline, CBRE is forecasting rents could rise by a further 10 per cent by year’s end.

There is also scope for strong growth in Melbourne rentals over the next 12 months, with CBRE forecasting an additional 13 per cent increase in super prime rents by the end of 2023.

“The Melbourne market has an extremely low vacancy rate of around 1 per cent and a high pre-commitment rate for new developments coming online over 2023 to 2026,” J-Baleh said.

“Of the approximately 1.7 million square metres of confirmed stock in the pipeline for this period, 72 per cent has already been pre-committed.”

National rents skyrocket

This sentiment was echoed by new data from JLL, which reported that national prime existing industrial rents had grown by 24.8 per cent during the past 12 months.

This was the strongest annual rental growth since JLL began tracking the market 34 years ago.

The March quarter reading at 4.6 per cent growth quarter-on-quarter illustrated market acceleration again, exceeding more moderate growth in the last quarter of 2022 at 2.9 per cent, and following the extraordinary quarters of growth in the third quarter of 2022 of 9.3 per cent and 6.1 per cvent in 2022 second quarter, a JLL spokesperson said.

East coast markets performed very strongly in the first quarter of this year, delivering yearly rental growth ranging from 20 per cent to 40 per cent in key markets, JLL found.

JLL head of industrial and logistics, Australia Peter Blade said they anticipated rental growth would remain strong this year even as economic challenges created business caution.

“The supply demand imbalance created in 2021 is taking time to reset.  The development pipeline is building,” he said.