Perth Industrial m3property Insight

July, 2019

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Perth’s industrial market continues to improve for prime space, seemingly at the expense of the secondary market.

Two-tier market developing

Perth’s industrial market continues to improve for prime space, seemingly at the expense of the secondary market, land values have started rising and prime rent has largely stabilised. A two-tiered market is developing with location and space flexibility being key drivers of demand.

Supply is expected to remain moderate over 2019 due to the value of building approvals remaining low over the past few years. This is driving a more positive short-term outlook for the market. Perth’s secondary markets continued to see very high vacancy and therefore rental declines in some submarkets.

A key trend in the Perth market over 2017-2019 has been the solid demand for larger new or higher quality, well-located space. Rental discounts since the GFC up until recent years have made this space competitive compared to some longer existing lease tails and have resulted in demand for this space.

Most tenants are looking for space in the inner or outer south markets in close proximity to major road and/or freight transport infrastructure.

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Tenant demand favouring prime

Prime industrial demand is being driven by tenants taking advantage of favourable market conditions to upgrade accommodation or take-up more efficient space, which can incorporate new technologies.

Demand for secondary stock is being driven by tenants seeking to cut costs. Some companies are taking advantage of lower rents and consolidating operations, while others are relocating to larger premises to suit their longer-term business requirements.

Difficulty in obtaining finance for development projects is likely to advantage the leasing market and keep prime vacancy in check, with owner-occupation of industrial space becoming more difficult.

Prime rents start to stabilise

Despite a rise in tenant demand and a decrease in vacancy over the past 12-months the still high vacancy in some locations and for older and/or less flexible stock is putting downward pressure on secondary rents.

Prime net face rents have, however, generally stabilised in Perth over the past 12-months. Secondary rents have seen further discounting in some regions. Over the year to June 2019, secondary rents fell by 2.3%. The falls were largely for space without proximity to major road or rail infrastructure.



“Incentives, while remaining high in Perth, witnessed a slight fall for prime space over the past year. This was on the back of a fall in prime vacancy over the time frame.”

James Farrugia
National Director

Investment activity slowing

Over the year to June 2019, there were $253.21 million worth of industrial assets traded in Western Australia, down from $455.65 million over the year prior.

Unlisted Funds with 17.9% of sales, by value, followed by private investors (16.8%) accounted for the largest portion of sales over the year (in sales over the $5 million threshold).

Yields continue to firm

Yields firmed over the past year on the back of continued positive investor demand. The divergence between prime and secondary markets remains, based on the principal market drivers of quality, location and lease covenant.

At June 2019 yields for prime assets were typically in a range from 5.75% to 8.50%, while yields for secondary assets were in a range from 7.00% to 9.75%.

Land values rise

Demand for industrial land generally increased over the past year. Typically, demand in the core areas is for larger landholdings of above one hectare, for the establishment of logistics or manufacturing facilities. For these properties, value is reliant upon major transport infrastructure.

Overall, Perth’s industrial land values increased by 3.9% over the year to June 2019. This hides significant variation between precincts with Inner West recording a slight fall, whereas the Outer North, Outer East and Outer South where land prices are generally lower, seeing solid positive growth over the year to June 2019.