Rental rates major precincts Syd / Melb / Bris

Nick Crothers

Australian industrial occupiers on the east coast are increasingly heading to the west and south-west industrial precincts of the major capital cities. The advantages over traditional mature industrial markets are:
1. Cheaper comparative overall real estate costs.
2. The availability of suitable (larger) industrial facilities.
3. Improved access to transport infrastructure.
4. Access to customers and skilled labour.

Driving this destination shift has been a structural change in the business operations of Australia’s major industrial occupiers. Since it is often more profitable to import goods from Asia and other trading partners, there has been a shift away from domestic manufacturing. Many businesses now either import component parts and assemble them locally, or import complete goods and focus on distributing them locally.

Transport and storage sector investing in expansion
This has driven growth in demand for larger, more efficient industrial space by the transport and storage sector. There has been a significant pick-up in planned expenditure by the transport and storage sector since 2001, which remains at a very high level. It means businesses in this sector are planning on expanding their operations by building or leasing new premises, introducing new technology to drive efficiencies, hiring skilled labour to maintain their operations and purchasing new plant and equipment to drive their business. ‘Just in time delivery’ is the key.

Development of motorways opening up new land
New motorways in Sydney, Melbourne and Brisbane have opened up large tracts of land suitable for industrial development. These motorways allow transport and storage businesses to quickly access the cities and their clients, without having to locate their major warehouse operations within major cities. The speed at which goods can be transferred between major capital and regional cities via road and rail is also a high priority. Many businesses no longer find it vital to locate their operations alongside shipping ports along the coast.

Greater focus on lowering real estate costs
Real estate costs have come under greater focus as an opportunity to reduce overall operating costs and increasing margins. Real estate costs in the outer west and south western industrial precincts are generally cheaper for businesses, whether they choose to be owner occupiers or to rent. For example, rents for prime industrial property in South Sydney are around 40% higher than in the outer central western corridor.

On a square metre comparable basis, net rents for prime warehouse space are cheapest in Melbourne’s west at $68 p.a./sqm, followed by Melbourne’s north at $72 p.a./sqm. Rental growth in these precincts has been moderate due to the availability of development land and competition between owners.

In Sydney, the availability of land and a plateau in land values has seen rentals grow only modestly in recent years. Net rents for prime warehouse space in the Sydney outer central west precinct are $105 p.a./sqm, higher than Melbourne, but lower than Brisbane.

In Brisbane, a strong economy and rapid expansion by industrial users have pushed industrial rental rates higher. Net rents for prime warehouse space in the Brisbane southern precinct are $105 p.a./sqm, followed by the Trade Coast at $124 p.a./sqm.

National networks going global
The transport and storage sector is operating on a national and increasingly global distribution network. Operating in multiple states or countries will create complex business problems. Investing in real estate solutions will maximise efficiencies in business operations. Forming a relationship with a real estate services provider with global coverage and a regional focus can unlock real estate solutions for your business.

Nick Crothers is the national industrial analyst, Research and Consulting, at Jones Lang LaSalle. For more information call (02) 9220 8525.

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