Industrial well placed for further growth in H2 and beyond

Unlike most commercial property asset classes, the industrial sector enjoyed a strong tailwind during the pandemic due to several drivers that kept vacancies at 0.8 per cent – making Australian industrial stock the most tightly held of its kind globally.

While yields may be softening for some asset owners following repeated interest rate hikes, the outlook for industrial properties remains very strong comparatively with other real estate verticals, with lengthy lease signings and rent raises helping to maintain profitability.

Since the beginning of 2023, the market has cooled off slightly, but with the level of new supply hitting the market being dwarfed by demand, the stage is set for another period of sustained growth.

What will be the biggest driver of industrial growth in 2023?

The biggest propellent of the industrial property sector’s performance will be the continued rise of ecommerce.

Across 2021-22, online sales increased by a robust 12.3 per cent as more consumers took to digital to continue shopping while the effects of the pandemic lingered, according to insights from research house Awin.

Online sales are expected to reach $43.21 billion in Australia this year, with this uptick forecasted to grow by over ten per cent in the next four years to $64.18 billion – even as consumers deal with increased financial pressures from interest rate rises.

So, as online retailer sales ramp up, many brands are looking for larger facilities that will allow them to consolidate their business operations across manufacturing, logistics, fulfillment and warehousing to keep up with increased demand – which ultimately requires more square metreage and will spur activity.

Which areas are most in demand? And where are future industrial land hotspots?

Melbourne’s outer south east region is one of the Victoria’s highest performing industrial zones, with hotspots including suburbs like Dandenong, Cranbourne and Pakenham continuing to drive solid yields for asset owners.

Furthermore, the rate of new industrial developments has not kept pace with ecommerce expansion and other retail business growth, and as such, valuations in this tightly held region have continued to surge.

Broadly speaking, industrial properties located in areas with good connectivity to freeways, major arterials and other infrastructure suited for freight and logistics are attracting a premium and continue to enjoy solid demand.

With more brand’s onshoring their operations off the back of COVID-19, which will mitigate international production bottlenecks and improve delivery timings for consumers, we expect to see organisations venture further into suburban/regional fringe areas.

Over the next six to 24-months, strong interest is anticipated in the north west region where accessibility to the Tullamarine and Avalon Airports, as well as shipping infrastructure at Melbourne Port and in Corio Bay near Geelong can support future expansion.

Which buyers will be most active in the market?

Similarly to the current market landscape, our experienced sales team expects that well-established private investors will continue to play a leading role in acquisition activity as they look to capitalise on properties with lower borrowing requirements.

That said, with many industry sources expecting the RBA’s repeated interest rate hikes to plateau, this should bring more international investment group capital into the market, creating more competition among prospective purchasers that will underpin a spike in transaction volumes and sales performance.

If you would like to learn more about our predictions for the industrial property sector, current Jones Real Estate sales and leasing opportunities in this vertical, or would like to discuss a separate property matter, please reach out to us at: info@jonesre.com.au.