Shortage Of Ready Land Drives Industrial Value Increase

The price of larger industrial land allotments in some of Melbourne’s northern and western industrial precincts has risen by 23 percent due to a shortage of ready-to-go development sites.

The general pick-up in demand has driven strong competition, and Savills Industrial Director Michael Green said the availability of sites is not expected to improve significantly before 2018.

"We have seen significant rises in land values in some key pockets and that has been driven by the shortage of development options at the same time as low interest rates are driving a surge in pre-commitments and leasing demand has risen more than 25 per cent on the long term average," he said.

"With delivery of key subdivisions a little way off we are likely to see that upward pressure on values remain until closer to 2018 especially with the strong push from occupiers wanting to get into the market.’’Approximately 505,200 square metres of industrial accommodation was leased in the Northern and Western industrial markets in the 12 months to September, up just over 26 per cent on the five year average of 402,193 square metres. Nearly a third of the total leased was in pre-commitments.

Associate Director Research in Melbourne Monica Mondkar said the increases in land value were generally related to land parcels sized between one to five hectares and 10 hectares plus, in precincts within close proximity of key road infrastructure.

"Proximity to freeways and major arterials remains the key long term driver of choice for larger industrial users, particularly those from the transport and logistics sectors, and our research would suggest that quality infrastructure projects in the pipeline such as the Western Distributor and the widening of the Tullamarine Freeway will attract the same level of demand,’’ Ms Mondkar said.

She said the most dramatic rise in 2016 had been the 23 per cent increase in values of 10 hectare plus allotments. Land which was selling in January for $110 a square metre is now fetching $135 driven by developers’ land banking requirements.

Ms Mondkar said the mooted North-East Link project, which would connect industrial operators in the east and southeast to the north without going through the city, the State Government’s commitment to develop a freight and logistics hub at Avalon Airport, along with the Western Distributor and Tullamarine Freeway widening projects, would all underpin the continued dominance of Melbourne’s north and west as Australia’s key industrial market.