Recent research has highlighted a substantial surge of interest in industrial property within the Brisbane area during 2022, which has had significant implications for the economy, landlords, and tenants. The demand for industrial space in Brisbane has led to a sharp decrease in vacant spaces, which fell by 14 per cent in the fourth quarter alone and were 65 per cent lower than the peak levels reached in 2021. The vacancy rate is at its lowest point in a decade, underscoring the intensity of demand in this sector.
Record Industrial Space Take-Up
According to the Australian Industrial Review for Q4 2022, Brisbane saw a record 1.1 million square metres of industrial space absorbed throughout the year, the highest take-up across East Coast markets. This impressive uptake has made Brisbane a focal point for industrial property, outpacing even larger markets.
Rental Growth Across Major Cities
The increase in demand for industrial property has led to significant rental growth across Australia’s four major cities. In 2022, Perth saw the highest rental growth at 41 percent, followed by Sydney with 29 percent, Melbourne with 19 percent, and Brisbane with 15.5 percent. Prime net face rents reached $210 per square metre in Sydney, $137 per square metre in Brisbane, $133 per square metre in Perth, and $126 per square metre in Melbourne. This upward trend in rents reflects the strong demand and limited supply of industrial spaces.
South West Brisbane: A Hotspot for Leasing Activity
In Brisbane, the South West region emerged as the most active area for leasing, driven by high demand from industries involved in transportation, postal services, and warehousing. The continued high level of leasing activity in this region throughout the fourth quarter is consistent with the broader trend of shrinking vacancy rates. Interestingly, much of the available industrial space that was taken up consisted of speculative developments that were still under construction, highlighting the eagerness of businesses to secure space even before it is completed.
Supply and Rental Growth Outlook
Despite challenges such as labour shortages, resource constraints, and less favourable weather conditions, the supply of industrial property in Brisbane continued to grow throughout the year. However, the strong demand has led to projections of rental rate increases between five and ten percent in 2023, although this growth is expected to moderate compared to the sharp rises seen in 2022.
Decline in Land Values and Yields
Since the fourth quarter of 2022, land values have decreased by $10 to $20 per square metre, while yields have compressed by 15 to 30 basis points overall. These changes reflect the ongoing adjustments in the market as it responds to fluctuating demand and supply dynamics.
Economic Impact
The surge in industrial property activity in Brisbane has broader economic implications. The heightened demand and increased rental rates contribute to economic growth by attracting investment, creating jobs, and enhancing the logistics and distribution infrastructure. However, rising rents can also increase costs for businesses, potentially leading to higher prices for goods and services, thereby contributing to inflationary pressures.
Impact on Landlords
For landlords, the current market conditions represent an opportunity to capitalise on strong demand and rising rents. Those with existing industrial properties can expect higher returns, while those considering development may find favourable conditions to expand their portfolios. However, landlords must also navigate challenges such as rising construction costs and interest rates, which could affect their investment strategies.
Impact on Tenants
Tenants, particularly those in the logistics, warehousing, and transportation sectors, may face increasing operational costs due to rising rents. This could lead to tighter profit margins and may necessitate strategic decisions about space utilisation and cost management. Some businesses might consider relocating to less expensive areas or investing in more efficient logistics operations to mitigate these costs.
Summary
The Brisbane industrial property market is experiencing a period of significant transformation driven by strong demand, rising rents, and evolving supply dynamics. The impacts of these changes are far-reaching, influencing the broader economy, shaping the strategies of landlords, and challenging tenants to adapt to the new market realities. As the market continues to evolve, stakeholders will need to stay agile to navigate the opportunities and challenges ahead.
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