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Rising online supply leading to an increase in vacancy rates, according to new research by global real estate services firm Knight Frank
June 20, 2024 | Staff Reporter | Australia | Property Management
Knight Frank’s Australian Industrial Review Q1 2024 found there was 196,000 sq m of take up in the first quarter of 2024 – a 6% increase for the quarter. The report found that more than half of the leasing activity came from pre-commitments (104,290sq m).
Knight Frank Head of Industrial Logistics in Queensland, Mark Clifford, said manufacturing users were the most active, accounting for 45% of take up, followed by retailers (25%) and transport users (15%). “Of the Eastern Seaboard cities, Brisbane saw the biggest take up over Q1, while Melbourne and Sydney saw a 43% and 60% drop respectively, largely due to a lack of pre-commitment deals,” Clifford said. “Despite the relatively strong take up over Q1, strong supply completions in Brisbane have seen vacancy in the industrial market rise significantly, leading to greater options for tenants.”
Increasing Availability of Space
The report also found available industrial space increased 50% from 309,073sq m in Q4 2023 to 462,979sq m in Q1 2024. This was in line with the trend across the industrial market on Australia’s Eastern Seaboard, with Melbourne’s vacancy increasing by 454,513sq m, ahead of Brisbane (153,906 sq m) and Sydney (151,703 sq m).
The research found vacancy in the country’s industrial market was back to early 2021 levels from the recent extreme lows, doubling across the Eastern Seaboard over Q1 this year to reach 1.49 million sq m.
Prime rental growth is expected to remain flat through the first half of 2024 before being drawn upwards by economic rents again in the second half of the year.
Jennelle Wilson, Knight Frank Partner Research and Consulting
Knight Frank Partner Research and Consulting, Jennelle Wilson, said available space in Brisbane’s industrial market has effectively doubled from the extreme lows of early 2023 and is back in line with the levels of early 2021. “The development pipeline for 2024 is sitting at 936,000 sq m, on-track to match the record 909,000 sq m of completions in 2023,” she said. “Despite the increase in vacancy rents have remained stable, edging up marginally by 0.4% in Q1 to be up by 6% over the year to $158 sq m net, while average incentives have also stabilised at 11 to 13%.”
Widening Gap
Looking ahead, she said the gap between prime and secondary rents is expected to widen. “Recently it was common for secondary assets to achieve rents very close to prime levels, but this is expected to become the exception rather than the norm over 2024,” she said. “Prime rental growth is expected to remain flat through the first half of 2024 before being drawn upwards by economic rents again in the second half of the year.”
Clifford said in terms of transactions in Brisbane’s industrial market, the breadth of purchasers and the size of industrial deals had begun to increase in Brisbane. “While private investors are still active in the sub-$30 million price bracket, this quarter also saw the participation of syndicators and institutional capital in the market,” he said.
The Knight Frank research found prime yields in Brisbane’s industrial market remained stable at 6.25% in the first quarter.
