Industrial Rents at Highest Level in 25 Years

Industrial rents are at their highest rate in 25 years as investors reposition in the post-pandemic landscape.

Rents in the sector were up in the first quarter of this year by 3.2 per cent compared to the previous quarter, according to JLL.

The last time the sector experienced a lift that high was in June, 1994.

The increase comes after a year-on-year increase of 9.9 per cent on the back of a strong second half of 2021.

There was also double-digit prime net rental growth in 11 of the 21 precincts tracked nationally, and double-digit secondary net rental growth in 16 of them. 

JLL’s head of industrial and logistics Peter Blade said this was due to the kind of demands investors were making about the properties they wanted to rent. 

“The immediacy of demand is driving even, strong rental growth for well-located stock close to major road networks,” Blade said.

“Secondary net face rents have increased by more than 20 per cent in Melbourne’s north and west precincts, and Sydney’s outer central west.”

S&P Global Rankings’ report predicted earlier this year that industrial landlords would turn their attention to logistics.

“Industries supporting the transition to online shopping are thriving," the report said.

"Industrial landlords are riding the wave of demand for logistics services to support growing online consumption.”

Despite a growing demand for industrial sites near major road networks and a rising trend for investors looking for microfullfilment or dark stores, in some areas where there is competition, rents are not growing as strongly.

“There has been little change over the year in Sydney’s outer central west, which includes the rezoned Mamre Road precinct, and Melbourne’s north where land options are more plentiful and developers compete to pre-commit occupiers,” Blade said.

South-east Melbourne has experienced the largest increase in prime net rental growth at 7.9 per cent with southern Brisbane recording the lowest increase at 0.5 per cent.

Sydney’s outer central west recorded the highest increase in secondary net rental growth with 8.3 per cent but Sydney’s inner west area recorded the lowest secondary net rental growth at 1.3 per cent. 

Experts also say that finding land for industrial use within major cities will be increasingly difficult. 

The JLL report comes as the Reserve Bank of Australia noted a major policy pivot to signal the cash rate will start to rise in coming months, indicating that “important additional evidence will be available on both inflation and the evolution of labour costs”.