Melbourne industrial completions up 32% to 288,200sqm in Q3

There were a total of 16 projects completed during the quarter.

Industrial completions in Melbourne increased in 3Q22, with 288,200 sqm delivered (32% increase q-o-q). 

According to JLL, completions remain elevated relative to long-term averages, as the large amounts of capital deployed by institutional developers in 2020-2021 begins to materialise through project completions.

Here’s more from JLL:

16 total projects reached completion in 3Q22, with 81% of space being pre-committed. Developers are waiting until closer to completion dates to secure pre-commitments in response to rental growth, as seen from only 53% of expected completions in 4Q22 being pre-committed. Completions are expected to decrease over the coming quarters in response to increased costs of capital and construction.

Occupier activity remains strong despite economic uncertainty

Gross take-up increased 94% q-o-q to 553,000 sqm, more than double the 10-year quarterly average (240,000 sqm). This sharp increase demonstrates that businesses are still responding to supply chain constraints, as a result of rapid business growth throughout the past two years. The West precinct showed the strongest levels of take-up, accounting for 52% of all take-up in Melbourne for 3Q22.

Take-up was majorly spread across three industries, led by the manufacturing industry (35% of total take-up), the Transport, Postal and Warehousing industry (28%) and the Retail Trade industry (22%). The Transport, Postal and Warehousing industry had the largest number of occupiers by count, demonstrating the volume of unique demand originating from this industry.

Rental growth remains robust

Prime rents continued their strong growth, increasing by 8.1% q-o-q across Melbourne. Secondary rents increased by 9.4% for the quarter, exemplifying a trend in which prime and secondary assets converge to similar levels of demand due to a lack of availability in the market. The City Fringe precinct recorded the highest prime rental growth for the quarter, increasing by 11.1% q-o-q.

Investment volumes increased to AUD 897.5 million, a record quarter of transactions for Melbourne. These transaction volumes were driven by two large sales, one being an AUD 300 million land sale in Melbourne’s South East, and the other being an AUD 150 million sale in the City Fringe precinct. Purchases for development purposes totalled 59%, while purchases for investment purposes totalled 41%.

Outlook: Further yield softening to be expected

Strong rental growth is expected to be sustained in the medium term. Low vacancy continues to be the driver behind rental growth. With an economic slowdown looming, the rate of growth is likely to slow in 2023. Land values are expected to revert slightly over the coming quarters, as they remained flat in the quarter, likely indicating a peak following a period of exceptionally strong growth.

Yields are likely to continue softening through 2023, loosening from their record lows over the past year. Capital values are for the moment being supported by rental growth and there is still strong evidence of positive investor sentiment for the sector. Structural economic changes, such as the trend towards e-commerce, are also driving positive sentiment.

Note: Melbourne Logistics & Industrial refers to Melbourne's industrial market (all grades).