Industrial tenants looking for new space for growth as the economy accelerates

An increase in gross take-up recorded in Jones Lang LaSalle’s Q1 2010 research statistics shows large occupiers are choosing to pre-lease or have purpose-built facilities, which will see the development pipeline growing again later in 2010.


Quarterly highlights

  • Gross take-up of industrial space increased in Q1 2010 to 367,200 sqm.

  • 2010 likely to see lowest level of new supply in over a decade.

  • Only 138,100 sqm completed and 597,800 sqm under construction to complete in 2010.

  • Rents flat or rising in most monitored precincts – lead by strong rebound in Perth.

  • Sales activity subdued as landlords hold on to product – $81.8 million sold in Q1 2010 compared to an average $408 million per quarter in 2009.

Michael Fenton, head of industrial services at Jones Lang LaSalle said the research shows that total industrial sales transactions of $81.8 million were recorded during the first quarter of 2010 (sale price >$5 million), which compares to an average of $408 million per quarter during the previous year. However, Mr Fenton cited the lack of product on the market as a key theme likely to pervade the investment market in 2010, and see lower than average sales volumes persist.


“That being said, there is a lot of confidence by investors in the industrial sector in Australia – both privates and institutions – and when the right product becomes available, we expect solid competition for good quality prime grade assets,” said Mr Fenton.


Gross take-up of industrial space was to 367,200 sqm in Q1 2010. This is well up on the 222,900 sqm recorded in Q4 2009.


Nick Crothers, national industrial analyst at Jones Lang LaSalle said the increase recorded in total take-up is being driven by the lack of available vacant space and an increasingly accommodating development market.


“Major occupiers are now seeking expansion space from pre-lease and design & construct options,” said Mr Crothers. “The creation of backfill space as new developments complete will give tenants more options in existing space and lead to greater overall take-up.”


The majority of take-up activity in Q1 2010 was in Melbourne (195,700 sqm) followed by Brisbane (71,600 sqm), Sydney (51,100 sqm), then Perth (29,300 sqm) and Adelaide (19,500 sqm).


Some of the biggest deals recorded in Q1 2010 include:

  • Kmart 76,700 sqm at Laverton North (Melbourne West);

  • Linfox 25,000 sqm at Laverton North (Melbourne West);

  • QLD Cotton 22,200 sqm at Derrimut (Melbourne West);

  • EQBD Converting 18,600 sqm at Greystanes (Sydney Outer Central West);

  • Symbion Pharmacy Services 17,300 sqm at Greystanes (Sydney Outer Central West).

The supply pipeline has been diminishing since the middle of 2008. The low point in the cycle is likely to be some point this year. This means there is a growing demand and supply imbalance that so far has been supporting rental levels, but is expected to see rental growth return in most markets this year.


There was only 138,100 sqm of new supply completed in Q1 2010. The majority of supply last quarter was in Melbourne (65%) and Brisbane (19%). Notably, there were no major projects completed in Sydney during the first three months of 2010, highlighting just how inactive development has been.


There is now 597,800 sqm under construction that is scheduled to complete in 2010 – the majority of which is pre-committed. Given this, 2010 is likely to have the lowest level of new industrial construction completed in over a decade. (As of the end of March, only 90,300 sqm of projects were under construction for 2011 delivery).


“Clearly, developers are dusting off the old plans and looking to secure more work now that conditions are improving. Speculative developments undertaken in Melbourne by a major developer have proven highly successful in finding tenants prior to completion. I think this is likely to be followed by other developers where feasible in an attempt to cash in on the supply/demand imbalance while it lasts – and it won’t be just in Melbourne where we see this,” said Mr Fenton.


Industrial rents continue to hold up and have increased in select precincts in Q1 2010. Average prime grade rents increased 5.3% in Perth North, 2.9% in Brisbane Southern, 1.4% in Brisbane Trade Coast and 1.5% in South Sydney. Similar gains were recorded in secondary grade stock in these precincts.


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