The top reasons industrial developers are looking west

Even as prices have ballooned and yields have shrunk, the state is still seen as offering better value for money than the highly competitive cities and regions on the eastern seaboard.

JLL Nick Goodridge says the key drivers of the WA industrial market had been the “alignment between the high-performing state economy and the insatiable, surging demand we are experiencing on the ground”.

The logistics and manufacturing sectors are leading new enquiries, putting upward pressure on both land and rental values.

In Perth, the warehouse vacancy rate fell to just 0.2 per cent, with the lack of leasing options pushing prime rents up 22.9 per cent in the year to June, according to Colliers.

Following a strong third quarter, Goodridge says 2022 was “shaping up as a record year”. Looking ahead, JLL has forecast a further tightening of stock in the short to medium term.

“In addition to the pre-lease market, we are in the initial stages of an emerging speculative construction cycle in WA, which has not traditionally been a strategy by local developers,” Goodridge says.

The Industrial Land Authority (ILA), part of the state government’s land development agency DevelopmentWA, has played a key role in unlocking strategically located industrial sites across Western Australia.

The ILA has released more than 200 hectares of metropolitan and regional industrial land since 2019.

Projects include Perth’s Orion Industrial Park, where former limestone quarries are slated to house up to 100 businesses in the freight, logistics, warehousing, fabrication and engineering industries.

Forty kilometres north of the CBD another industrial project is in the pipeline, the Australian Automation and Robotics Precinct. Set across 50 hectares, DevelopmentWA is engaging with the technology sector and universities to ensure the precinct becomes a state-of-the-art development and testing ground attracting automation innovators from across Australia and globally.

Despite soaring construction costs, some developers are constructing properties on spec to take full advantage of future rental growth.

Lots are already up for sale in the Collie Light Industrial Area, a regional town 55 kilometres east of Bunbury, home to coal and bauxite mining and refining and is the focus of the WA government’s Collie Industrial Transition Fund supporting new and emerging industries in WA’s south-west.

DevelopmentWA’s chief executive, Dean Mudford says the strong trading of the resources sector through the pandemic has created sustained demand for engineering, fabrication, transport and logistics sites.

“Additionally, new investment in growth sectors such as lithium processing, fertiliser production, minerals sands, rare earth and renewable energy, combined with lower gas and energy prices in the west have added to the growing appeal of investment in Western Australia.”

The development of industrial estates across the state requires enormous and costly investments into the state’s infrastructure, with developers closely monitoring road and rail options.

Over the next four years, $7 billion will be spent upgrading WA’s road network, including extending the Tonkin Highway to Muchea, allowing for the establishment of the Muchea Industrial Park.

Mudford says Westport, the proposed port in Kwinana, is the key piece of infrastructure expected to change the industrial land landscape in Perth. The project will aim to alleviate Perth’s freight congestion problems, and vastly improve trade routes.

Regional road upgrades will include Bunbury Outer Ring Road, the Albany Ring Road, the Manuwarra Red Dog Highway and Oakajee Access Road.

While interstate developers tend to focus their efforts on securing land in core markets, Goodridge says undersupply and active local developers make the process challenging.

“Ultimately new entrant developers will home in on land holdings that offer them either immediate development opportunities with existing customers or sites that provide significant value add scenarios through rezoning or proximity to major infrastructure upgrades.”

Like the broader commercial and residential markets, the industrial sector has been heavily impacted by rising construction costs and global supply chain disruptions.

“The inflationary construction cycle we are experiencing is clearly a major contributor to the upward pressure we are seeing on rents in the current market, as building cost increase almost quarterly,” Goodridge says.

Economic rents across developments are up between 15 and 20 per cent compared to 12 months ago, he says.

“Given the supply and demand imbalance in the current market, we are forecasting significant rental growth in the Perth market over the course of the next 12 months.”

Dean Mudford says: “Although some relief in material shortages appears to be emerging, labour availability continues to be a pressure point impacting industrial projects in WA.

“Help is on the way with strong population growth expected on the back of a record number (20,000-plus) of new homes currently under construction across WA.”