Brisbane Industrial m3property Insight
The Brisbane industrial market is performing strongly, with rents increasing, land rates growing robustly and yields continuing to tighten.
Brisbane market performing well
The Brisbane industrial market is performing strongly, with rents increasing, land rates growing robustly and yields continuing to tighten. The rental market is being driven by occupier demand for modern and efficient buildings and the investment market by purchaser demand continuing to outweigh investment supply. A forecast increase in project completions in the latter half of 2019 could see transaction activity increase further and the record low interest rate environment is expected to see yields tighten further.
The Inland Freight Rail is expected to be a catalyst for growth in the Brisbane industrial market. Whilst in its current form, the Inland Freight Rail will end at the Acacia Ridge terminal, there is the potential for the line to be extended to the Port of Brisbane, which would result in an improved connection to the Western Corridor and Toowoomba. The State Government and South East Queensland (SEQ) Council of Mayors proposed this connection as part of the SEQ City Deal Proposition in February.
Supply expected to increase
There were 1,092 industrial buildings approved in Queensland during the year ending May 2019, increasing 7.3% from the year ending May 2018. Supply completions are expected to increase considerably in 2019, with most new supply expected to be added to the Western and M1 Corridors.
It is estimated that there will be circa 300,000m2 of new supply completed across the Brisbane market during 2019, most of which is pre-committed. Major completions for 2019 will include new buildings for Coles (66,000m2), Australia Post (49,000m2) and Rheinmetall (42,000m2), all of which are located in Redbank (Western Corridor).
Tenant demand strengthens
Occupier demand for prime industrial property across Brisbane has continued to strengthen. The major absorbers of space have been food manufacturers, transport/logistics operators and consumer product operators. These sectors are all aligned with population growth and are expected to continue given Queensland’s positive outlook for population and consumption growth.
Queensland merchandise exports have grown strongly, and industrial production is forecast to remain at above-national levels. Furthermore, the recent cuts to the official cash rate could result in increased activity in the retail and residential sectors which have flow-on effects to industrial demand. Another demand trend that has continued is the preference for modern, efficient buildings. This has driven the design and construct market during recent years and has contributed to rising land values.
Rents show solid growth
Prime net face rents generally range between $100/m2 and $150/m2, having grown by an estimated 5.3% over the year to June 2019. Secondary face rents typically range between $70/m2 and $115/m2. Due to declining vacancy in the secondary market, rents have also grown over the past year. However, because tenants continue to show a preference for new space, extended letting-up periods for some secondary assets still occur. Incentives typically ranged between 5% and 18% as at June 2019. Looking forward, we expect that outgoings will rise over the short-term due to land value growth resulting in higher land taxes, which will be passed on to occupiers through increases to recovered outgoings.
Investment market solid
The 12-months to December 2018 was a big year for the Brisbane industrial investment market with circa $970 million of industrial assets transacted. During 2018, most properties transacted were in the sub-$30 million price bracket, with a shortfall of investment-grade stock brought to the market. During 2019, there were circa $540 million of industrial assets transacted during the first six months of the year. Offshore investors, A-REITs, unlisted funds and syndicates have been active buyers. As is being seen nationally, demand for logistics facilities has been strong and this is expected to continue given growth in the e-commerce sector.
Over the year to June 2019, average prime yields tightened by 15 basis points to range between 5.75% and 7.00% and average secondary yields tightened by 35 basis points to range between 7.00% and 8.50%.
Land values soar
Industrial land rates across Greater Brisbane have increased considerably during recent years due to supply constraints, strong owner-occupier activity and strong design and construct activity. From the June 2018 quarter to the June 2019 quarter, average land rates for 2,000m2 to 5,000m2 lots increased by 21.0%. Over the past three years, land rates have increased by circa 46%.