As we head into 2020, Brisbane’s industrial property sector is next in line to benefit from shifts in the corresponding Sydney and Melbourne markets .
In recent times Melbourne has benefitted most from the lack of industrial space across Sydney, and now it is Brisbane’s turn to feel a flow-on effect in coming years, according to research by major commercial property companies.
Compared to other national (and worldwide) investment options in property and non-property asset classes, Brisbane’s industrial property market has emerged as an attractive investment option for institutional investors due to stronger returns, Colliers reports in its latest Industrial Research and Forecast Report 2019. Year-to-date volume of sales (above $5 million) in Greater Brisbane and Yatala of $1.09 billion are on track to outperform the 2018 sale volumes, the research shows.
At the same time, Sydney and Melbourne are experiencing the most critical land shortages, while Queensland’s commercial real estate operators report rising interest from interstate buyers and developers looking for opportunities outside the southern capitals’ more crowded markets.
Both Sydney and Melbourne represented the greatest rise in industrial demand in previous years, yet are now suffering “severe challenges in unlocking serviced and zoned development land,” observes Charter Hall’s industrial chief executive officer Richard Stacker.
Signs of the times
The success of Melbourne’s industrial sector has been double-edged with the city’s most popular western suburbs sector now running out of supply.
Jones Lang LaSalle forecasts just under 5 years of suitable industrial land will be available unless connection to such services as water can keep pace.
In its report Melbourne’s Industrial West: Dispelling the Industrial Land Supply Myth JLL found 1198ha of sites vacant and just 450ha available for institutional-grade stock (minimum requirements usually 4ha).
Competition for land at current rates would see western Melbourne depleted of services, institutional-grade sites in just under 6 years, JLL deduced.
In Sydney, JLL’s director of industrial research Australia Sass J-Baleh notes while the city’s property market is the strongest nationally, it is also land-constrained. “(This is) a fundamental reason for the strong growth in industrial land values over the past few years, as well as a softening development pipeline," Ms J-Baleh says.
Colliers reports that Melbourne’s increase in industrial land values has been in the range of 25 to 105 per cent for the past five years, with average land values ranging between $305 per sqm to $1400 per sqm.
Similarly, Sydney has seen growth in average industrial land value growth varying between 85 to 215 per cent in the past five years, or $725 per sqm and $2,750 per sqm. Brisbane has seen a solid 5-year increase in land values in the range of 25 to 50 per cent, equating to $300 per sqm up to $415 per sqm.
“As the current infrastructure investment in projects like the M1 Pacific Motorway and the Logan Enhancement Project strengthens the outlook of the industrial market, REITs have identified Brisbane as a strategic location for industrial investments,” Colliers International reports.
The company further anticipates that REITs will continue to drive most of the demand for investment in Brisbane’s industrial assets over the next 12 to 18 months. “This is because the Brisbane industrial market continues to consolidate as a preferred location for a variety of operators looking for affordable large-scale warehouses in proximity to a transport network offering cost efficient connectivity to national and international markets,” the report states.
Long range forecast
When it comes to the industrial sector’s long-term future, the $10 billion Inland Rail project scheduled for completion by 2028 will make the greatest impact, according to Colliers International.
The company says this project will lead to long term benefits for non-traditional regions as it challenges the status quo of the country’s east coast industrial markets by expanding and connecting supply chains across Melbourne and Brisbane to international and other domestic markets.
“The completion of this project is expected to support industrial development beyond the traditional capital-cities industrial precincts and into regional locations in proximity to the rail line in Victoria, NSW and Queensland,” Colliers reports. “The most likely regions to benefit from the Inland Rail are expected to be Toowoomba, Willowbank, Bromelton and Acacia Ridge in Queensland, Tottenham in Victoria and Parkes in NSW.” Helping drive the development will be the strategic lift in national freight capacity created by the Inland Rail project, with Colliers forecasting distribution and transport efficiencies reflected on rail costs savings of about $10 per tonne between Melbourne and Brisbane.