• Knight Frank Research’s quarterly analysis of vacant industrial space found that there were increases from historical lows in Melbourne over the past quarter, while Sydney recorded its second consecutive quarterly rise in vacancy. Brisbane recorded a modest decline over the quarter however it is expected to join the other cities with higher levels of available vacant space over the coming quarter.
• Total Vacancy on the Eastern Seaboard has increased by 12 per cent over the past quarter, driven by Sydney and Melbourne, but remains flat over the past year (to July 2012)
• This increase in available space has arisen as a result of the increased supply pipeline, to date predominantly in Sydney and Melbourne where larger tenants are relocating to design and construct (D&C) building projects or into new speculatively developed accommodation, leaving sometimes significant chunks of space vacant. The Brisbane market is expected to follow suit over the next quarter, largely due to D&C projects as the speculative development starts have remained scarce.
• Take-up of vacant space across the eastern seaboard was 9 per cent higher over the six months to July 2012 (71 buildings over 554,272sq m) as opposed to the previous six months. All three cities recorded growth however Melbourne (10 per cent) and Brisbane (10 per cent) saw stronger results than Sydney (8 per cent).
Matt Whitby, Knight Frank’s National Director, Research, said although building take up levels have remained relatively strong across the board, the markets have been impacted by a growing supply cycle with both D&C and speculative development relocating larger users. It is predominantly this increase in development activity and the associated backfill space which has seen the vacancy levels rise.
Overall the level of available prime space has increased across all three cities over the past quarter with the total prime vacant space increasing by 20 per cent over the quarter (although it remains 6 per cent lower on an annual basis from July 2011).
The amount of available secondary stock also increased across the East Coast markets over the past quarter, up by 9 per cent over the previous quarter (3 per cent over the past year).
Mr Whitby said “the best market in terms of take-up over the three months to July 2012 was clearly the Sydney region, with recorded take-up of 119,274sq m. This was a substantial 40 per cent above the 85,038sq m recorded for the first quarter of 2012, returning the market towards trend levels, albeit vacancy still rose.”
Despite the increased speculative construction activity, particularly in Sydney and Melbourne there remains a large disparity between the amount of available prime and secondary space. Secondary vacancies currently account for 940,468sq m (67 per cent) of the East Coast market with prime space relatively more scarce at 468,539sq m (33 per cent).
Mr Whitby added, “this remains most acute for the larger space users with only six prime opportunities above 15,000sq m in Sydney, seven over 10,000sq m in Melbourne, and zero prime vacancies above 10,000sq m in Brisbane (although there are two prime buildings between 9,000sq m and 10,000sq m).
Mr Whitby said that now the level of tenant mobility was increasing across these cities, due to the injection of new space (either pre-committed or speculative) the level of available secondary space was likely to continue to grow as tenant upgrading would remain a central theme, so long as the price differential between prime and secondary remained viable for tenants.
• Approximately 859,992sq m of Industrial Accommodation across Sydney is available for lease.
• This increase is despite the recent improvement in take-up across the Sydney market (take-up excluding D&Cs is up 8 per cent over the past six months) as a few, large vacancies coming onto the market have outweighed this improvement in general demand.
• The precinct with highest level of vacancy is in the Outer West, however prime space only accounts for 24 per cent (106,994sq m) of this (immediately occupiable prime space is only 18 per cent, with the remainder speculative space under construction).
Derek Erwin, Knight Frank’s Managing Director West Sydney said the last quarter in Sydney has seen steady improvement in leasing activity as shown by the 8 per cent increase in gross take up over the six months to July 2012, compared to the latter half of 2011.
“Indicative of tenants showing a preference for prime facilities, speculative stock continues to be well received by the market with 73,662sq m of speculative stock being absorbed over the past nine months across seven new lease deals.
“However, despite the encouraging take up results over the course of 2012, this has not been sufficient to outweigh the small number of large vacancies that have come to the market and underpinned the rise in total vacancies.
Mr Erwin said although some pending backfill space will become available over the second half of 2012, the resulting vacancies are not forecast to be as significant as those in the first half.
“Combined with the leasing activity returning to trend levels, as well as some present vacancies currently in Heads of Agreement stage, the level of vacant space is forecast to reduce over the next two quarters, particularly for prime grade” he continued.
• Total vacancy levels fell modestly by 4 per cent over the past quarter to another record low of 170,938sq m.
• Available space remains 50 per cent below the historical average and 34 per cent below the level of vacancy that was seen one year ago.
• Despite the continued fall in total available space, the prime vacancy increased by 41 per cent over the past quarter (down 4 per cent over the past year) to account for 40 per cent of the total available space within the Brisbane market.
• The level of take-up was lower over the past quarter (12 buildings for 60,582sq m), but remained in line with recent trend levels.
• Larger tenants remain bereft of choice, with only two buildings available in the 9,000 – 10,000sq m category – with none larger currently available.
Greg Russell, Knight Frank’s Joint Managing Director, Industrial, said the continued lack of options for larger tenants, particularly those seeking prime space is driving the pre-lease market.
“Larger tenant requirements such as the recently completed Kmart facility (5,000sq m), the recent CEVA logistics 40,000sq m commitment at Berrinba and further major tenant requirements active in the market are all absorbing large chunks of serviced industrial sites. With the stock of developed industrial land now running down quickly, particularly over 1ha, further larger development will require more creative solutions from developers.
“D&C commitments continue to take a long time to negotiate in the Brisbane market; all the while the prime existing options remain scarce. We expect to see both an increase in D&C commitments and also more leases done on existing accommodation with high utility before the previous tenant has relocated.
“While the general leasing market has remained cautious and without urgency, the lack of suitable accommodation has seen some growth in prime rental levels over the first half of 2012. As the level of backfill and sub-lease space builds over the course of 2012, further major rental appreciation will be difficult to achieve without major improvement in business and tenant confidence.
“At this stage the majority of new space is expected to come from D&C accommodation, despite advanced planning on a number of speculative developments none of the buildings had commenced construction to July 2012 he said.”
• Approximately 378,077sq m of industrial accommodation across Melbourne is available for lease
• Vacancy levels in July 2012 reflect a 27 per cent increase from the low-point of April 2012, but this still reflects 14 per cent fall over the past year
• Take-up was 112,299sq m during the 3 months to July and this remains constrained by the relatively limited stock.
James Templeton, Knight Frank’s Managing Director, Victoria, said “despite the recent uptick in available space the Melbourne industrial market continues to be tight. Available space, particularly in prime properties in key locations remains relatively scarce and we have seen some upward pressure on rentals for these properties.
“Both Australand and DEXUS continue to be aggressive in the speculative market and construction has commenced on five new speculative buildings, currently all of which are in the Western region. The successful recent absorption of speculative space committed by ACFS, Australia Post and Fastline has boosted the confidence of major developers to expand their speculative pipeline.
“For occupiers with the luxury of time we expect increased activity in the land and building package area with owner occupiers taking advantage of the current competitive pricing. Additionally D&C activity is expected to increase over the remainder of 2012” he said.
For further information, please contact:
Matt Whitby, Head of Research & Consultancy, 0418 404 854
James Templeton, Managing Director, Victoria, 0411 525 217
Greg Russell, Joint Managing Director, Industrial, 0412 420 736
Derek Erwin, Managing Director, Western Sydney office, 0409 828 790
Accompanying charts in email
Note to editors
This analysis collects and tabulates data detailing vacancies within industrial buildings across all of the Sydney, Brisbane and Melbourne Industrial Property Markets. The analysis only includes building vacancies which meet the following criteria:
1) The sample data includes buildings with a minimum floor area of 5,000sq m in Sydney/Melbourne and over 3,000sq m in Brisbane, which are physically unoccupied at the time of survey.
2) Buildings are categorized into the below three types of leasing options
• Existing Buildings – existing buildings for lease.
• Speculative Buildings – buildings for lease which have been speculatively constructed and although have reached practical
completion; still remain available for lease/purchase.
• Under Construction – buildings for lease which are being speculatively developed and will be available for occupation within 12
Data collection and analysis represents a snap shot of market vacancy as at July 2012, i.e. the start of the 3rd quarter.
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