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Industrial market reports a stellar quarter in 2021

Categories: Industrial

Make no mistake, Australian industrial real estate is hot property in 2021, and everyone wants in on the action. The result? Rental pricing and capital values are skyrocketing.

Explaining the state of Australia’s industrial property market is simple. It is booming. Industrial market reports in 2021 point to a staunch investor appetite for warehouse and logistics premises, with both tight vacancy rates and few development opportunities driving rental pricing through warehouse and logistics rooves.

Victoria and NSW are overloaded with investors seeking a long-awaited destination for their capital (before the moths get to it first), and industrial tenants are feeling similar stresses due to scarce occupancy options.

And neither investment nor takeup is slowing.

In the three months to June 2021, Melbourne’s west secondary market saw net face rental growth increase by a whopping 10 per cent quarter-on-quarter. And the popularity is extended to the leasing market, with Melbourne and Sydney’s industrial vacancy rate hitting historic lows at 1.55 per cent and 1.40 per cent respectively.

Tight vacancy rates

Speaking with The Urban Developer earlier this month, JLL’s head of industrial and logistics research Annabel McFarlane says it is a tough market for tenants looking for industrial space, particularly warehouses.

“There’s simply not enough assets to find for a tenant … it’s very hard for the occupier and that’s driving rents [up],” she said.

industrial real estate reports 2021

2021 is the first time that industrial yields have been sharper than office and retail, a fact that might surprise many who assume the makeup and prettiness of office and retail premises would surely outweigh yields from the rugged, unintelligible facade of industrial assets. As with anything in real estate, don’t be fooled by face value.

Cold storage, the newest hero for the industrial real estate market, is reported to be the toughest sub-class in 2021 for tenants to find a home. According to Centuria Industrial REIT fund manager Jesse Curtis, who also caught up with The Urban Developer this month, “There is zero vacancy rate in cold storage, you cannot lease cold storage space to save yourself right now.”

The obvious result of tight vacancy rates sets a clear path north for rental price growth.

Flight of capital

The industrial market is incredibly fast-moving. The industrial sector saw $6.3 billion worth of deals close in 2020’s Q4 with more than 550 industrial assets traded.

There is a flight of capital that we haven’t seen for a long time in this space, perhaps ever. But it’s this popularity that is contributing to an extreme shortage of supply and investment opportunities in industrial real estate.

So, given Australia’s series of state lockdowns are far from over (as well as the relevance of logistics, cold storage, and warehouse facilities), will we see this positivity strengthen in 2022? Or will capital flow elsewhere, as investment opportunities continue to dwindle and investors seek alternatives?

I ask this because we’ve seen it before: When headlines put a particular asset class in the spotlight, investors will throw away the microscope and put on their blinkers. It’s as if there’s a fear of missing out, a fear that pushes investors to severely surpass their original investment budget.

industrial property market report 2021

This is exactly what we’re seeing in the industrial real estate sector today.

Too much talk of a popular asset class or hot location can prevent investors from considering alternatives in potentially much more fruitful sectors of the property market. Those who remain flexible and open to other investment targets, especially those in today’s competitive commercial real estate game, may see that other asset classes in different locations are incredibly undervalued and a prime target for their capital.

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