Melbourne Commercial & Industrial Market Update – October 2019

September 23, 2019

Victoria’s economy continues with its strong performance, driven by population growth, international investment, and a rise in e-commerce. This has led to a strong of demand for logistics and warehousing space throughout Victoria but furthering an appetite for speculative design and construction, mainly in the western suburbs of Melbourne.

The office remains a favoured sector by investors; according to ANREV, Melbourne has overtaken Sydney and become the most preferred city for office investment.

Redevelopment of city fringe industrial into residential properties has led to a lack of supply, further pushing industrial tenants and developers to the south-east, west and north and driving land values. Over the past two years, industrial land values in Melbourne have increased significantly; notably the South East has seen a 10-15% YOY growth thus restricting supply.

In the past year, increases in land values in the South East are finally reflected in rising rental rates, with rents having increased by nearly 10%. We expect rents to further increase in the short term given the tight supply of existing stock and ever rising development costs.

In the first half of 2019, we have seen sales volumes be somewhat short of 2018’s numbers, however this is not a reflection of diminishing demand. Rising rents are proof of tenant demand and strong long-term returns continue to draw investors’ attention.

Focusing on Melbourne’s south east there is a shortage of stock availability and lease supply in industrial standalone 1,000m² – 2000m² and 3,000m² – 6,000m², while there are number of speculative buildings and prelease opportunities coming to the market to cover the market 5000m² and above.

Clyde is an emerging market in the South East. Clyde North’s Element Business Park, a current MAB land release which just completed Stage 2, achieved up to $425 per m² on lots ranging from 1,422m² – 34,177m². The neighbouring development, Summit Business Park, has commenced warehouse construction targeting the sub 1,000m2 industrial occupier.

We anticipate that with restricted supply and the rise of rental rates, investors and developers will begin to focus more on rental growth rather than yield.

Mark Bond – Facey Property