Construction delays and rising costs have combined to reduce Australia’s 2022 supply pipeline of new industrial and logistics space by 600,000sqm, nearly one quarter of the original forecast.
A downgrading of the outlook across the five major cities from 2,700,000sqm to 2,100,000sqm is part of CBRE Research’s Q3 2022 Industrial & Logistics Figures report.
The report also outlines record rental growth of 6.7% quarter-on-quarter for super prime assets, with rents across all grades rising by 16-19% year-on-year nationally, headlined by just shy of 30% for Sydney’s newest facilities.
A total of 654,000sqm of new supply came online in Q3 to bring the year-to-date figure to 1,400,000sqm – all-but matching the long-term average of 1,500,000sqm – however the overall pipeline for 2022 has been downgraded.
Construction delays stemming from wet weather and labour shortages, and rising costs based on material shortages and supply-chain disruptions have delayed some projects by up to one year, with some cancelled altogether.
Australia’s national industrial and logistics vacancy rate sits at a world-low of 0.8%, with Sydney’s rate the lowest in the country at 0.3% and Brisbane’s the highest at 1.4%.
Of the forecast 2023 supply pipeline of 2,500,000 sqm, 41% is already the subject of pre-commitments.
“Occupier demand continues to outstrip supply in most capital cities,” said Cameron Grier, CBRE Regional Director, Industrial & Logistics, Pacific.
“Developers are simply not able to bring on space swiftly enough, with long delays in planning approvals in some states and construction delays caused by wet weather and labour shortages.
“For some projects, this is adding up to delays of six-to-12 months.
“Coupled with the lack of supply being brought to market, when you overlay some 40% increase year-on-year in construction costs and softening cap rates, it’s putting even further upward pressure on rents to hit the new return hurdles of investors.”
Weighted-average net face rents for super prime facilities have risen by 19.2% year-on-year, with the national average now sitting at $134/sqm following Q3’s further climb of 6.7%.
There’s also been considerable rises for older facilities, with weighted-average net face rents for prime- and secondary-grade assets up by 18.6% and 16.0% respectively this year.
Sydney and Perth have recorded the largest 2022 rises to date, 29.6% and 24.3% y-o-y for super-prime assets, with Perth’s Q3 rise of 9.3% the nation’s biggest.
“Q3 was another quarter of record-breaking rental growth in Australia’s industrial and logistics market,” Sass J-Baleh, CBRE’s Head of Industrial & Logistics Research Australia, said.
“To bring the Australian market to a state of equilibrium, around 3.7 million sqm of space is required and only 2.5 million sqm is currently under construction.
“Therefore, we can expect strong real rent growth to continue over the next three years, averaging at just over 6% per annum.”
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