Brisbane industrial market robust amid concerns of an under supply

This is especially the case on the city’s southside, where analysis of leasing data by specialist industrial property consultants King & Co found that demand for established assets was continuing to grow, while the supply of industrial space was falling.

CBRE industrial capital markets senior director Edward Bull said the 2018 industrial market outlook was optimistic, forecasting improved leasing conditions, which will subsequently encourage a strong net uptake on- and off-market.

“We’re optimistic about rental growth in Brisbane, which will further enhance the demand for investment-grade product,” Mr Bull said.

“Over 2017, tenant demand from businesses involved with logistics, warehousing and storage services accounted for 30 per cent of leasing activity.

“Land values in key metropolitan Brisbane precincts are up $50 per square metre, on average, largely due to the lack of supply of good quality, well positioned englobo land parcels coupled with increased demand for inner industrial sites.”

According to CBRE, new supply will be limited over the next year, with speculative development on the decline.

CBRE research shows that new supply for the fourth quarter of 2017 totalled about 56,700 square metres across three projects, bringing total new supply completed for 2017 to about 296,000 square metres.

That figure compared with a net increase of about 313,500 square metres during 2016, according to the research.

“The number of speculative developments are expected to decline over 2018, with only a small handful of projects under construction as at the end of 2017,” CBRE senior research analyst Yvette Burton said.

“Increasing demand for warehousing and logistics, however, is seeing an increasing number of development applications being submitted, with mooted supply for 2019 on track to be the highest in five years.”

Much of the prospective development has been flagged for the western and outer-southern corridors, she said.

On Brisbane’s southside, King & Co’s director, professional service and property management Peter Roberts found that average rents had risen 6.24 per cent in the 2017 financial year to an average $101.29 a square metre.

In the year to May 2018 the average rent was $99.13 a square metre, “which indicates that demand remains strong and stock supply is falling”, Mr Roberts wrote.

“This trend of increasing demand should see rents continue to rise and length of tenure increase into the medium term.”

Colliers Industrial national director Matthew Frazer-Ryan said the Brisbane industrial sector moved from a “shallow” market between 2014 and 2016, to a robust one in 2017.

In many part of Brisbane supply of warehouses is becoming ‘acute’, according to some agens. Photo: Andrew Hobbs Photography

“2017 represented one of the biggest leasing deals on record for Brisbane and more broadly southeast Queensland,” he said.

“We had over 470,000 square metres of industrial space leased across existing buildings being let or purpose-built facilities being designed and built to suit occupier requirements.”

However, supply had now tipped into “acute” territory, he said, with a dearth of well-located, accessible sites from Brisbane to Yatala and even Ipswich.

The Trade Coast continued to be popular but was also being hamstrung by a lack of supply, he said.

He said new warehouses were on the horizon at the airport, but likely would not be available for some time.

Demand was strongest from the construction and consumer supply groups, he said, but also from the evolution of advanced warehousing and automation.

“It’s Coca-Cola doing their new Queensland distribution centre that’s extra high bay with automated racking,” Mr Frazer-Ryan said.

“It’s food processing and delivery groups like Quality Foods doing new facilities to cater for their business growth.”

Mr Bull said the increasing trend towards automation was set to be a game-changer for many businesses, particularly for those within the logistics, manufacturing and warehousing sectors.

“The ‘Industry 4.0’ revolution will see more warehousing and manufacturing facilities become increasingly more efficient, which will increase competition and drive demand for state-of-the-art, super prime-grade facilities,” he said.

Ms Burton said competitive rents were underpinning demand for prime-grade tenancies.

Brisbane’s industrial occupier market continued to be driven by a flight to quality with prime grade stock accounting for 64 per cent of about 920,000 square metres of leasing activity over 2017, she said.

Mr Frazer-Ryan said Brisbane’s western corridor was one of the locations to watch over the short to medium-term.

“I think opportunities will continue to develop in the western corridor, out towards Ipswich,” he said.

The Logan enhancement project, which included upgrade infrastructure works, would improve traffic flow along the Logan Motorway, he said, which complemented a number of upgrades along the Ipswich Motorway.

“That western corridor really does offer significant land supply, with a highly motivated council, and I think that’s where significant growth opportunities exist for both landlords and also occupiers,” he said.

CBRE industrial advisory and transactions business director Pete Turnbull said the decrease of prime-grade stock may cause a slight decrease in the level of incentives this year.

“We are not aware of any large speculative development which will cause this supply to change and therefore believe there could be a continued decrease throughout the year on incentives,” he said.