Rising values allow developers to offer incentives

Firming capitalisation rates and the associated rise in building values in Melbourne’s south-eastern industrial market has resulted in the largest uptake of industrial space in recent years according to the latest Savills research.

According to Savills Notting Hill office Director, Lynton Williams, major tenants are having their day in the sun with developers able to entice them into pre-committing to new buildings with attractive rental incentives.

“Firming capitalisation rates driven by the very strong investment market has seen a rise in building values and that is providing room for developers to offer very attractive deals on new purpose-built facilities.

“Tenants have rarely had it so good,” Mr Williams said.

He said a pick-up in economic activity in Victoria over the last 18 months on the back of key infrastructure projects, which had also engendered a new level of business confidence, was another key factor influencing corporate decision making around commitment to new facilities.

View the Melbourne Industrial South East leasing activity over the past 10 years.

According to Savills Associate Director Research in Victoria, Monica Mondkar, the 456,920 square metres leased in the South-East in the 12 months to March accounted for more than 50 percent of total industrial take-up across Melbourne.

The total is nearly 100,000 square metres up on the 357,749 square metres leased over the previous 12 month period and up 63 percent on the five year average of 279,122 square metres.

According to Deloitte Access Economics, Victoria’s Gross State Product (GSP) is forecast to achieve 2.8 percent growth over FY 2016/17, just over the national average of 2.7 percent and well above NSW which is forecast to grow at 2.1 percent.

March figures from the ABS put Melbourne’s population growth at 2.4 percent in 2016 – the fastest in the nation - (Brisbane grew 1.8 percent and Greater Sydney 1.7 percent) while four of the five fastest growing suburbs in Australia were in Victoria including Cranbourne East in the South-East.

Ms Mondkar said the population data backed up the strong leasing market with the key sector Wholesale - which includes household/large format items – accounting for 44 percent of the total leasing take-up.

“Space requirements from Wholesalers – more than 160,000 square metres - especially food and large format distributors, have been on the rise driven by unprecedented demand from key population growth corridors including Pakenham, Casey and Cranbourne in the South East,” Ms Mondkar said.

She said of the 200,000 square metres leased by wholesalers, 110,527 square metres was pre-committed, just under half of the 251,270 square metres pre-committed across the whole of Melbourne.

View the sector breakdown for Melbourne Industrial leases.

Learn more about Savills Industrial services.