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Industrial Rent Growth Begins To Slow Down

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Industrial rent growth begins to slow down.

The record run of industrial rent growth is finally showing its first signs of easing after posting a 23 per cent rise in 2022.

According to JLL, prime net face rents rose by 2.9 per cent nationally in the December quarter, after jumping 9.3 per cent and 6.1 per cent in the previous two quarters. Meanwhile, annual rental growth for 2022 reached 22.9 per cent – the highest rate since 1989 when the data was first recorded.

Across Sydney, there were some areas that experienced even higher rent increases including the outer southwest, which jumped 38.6 per cent over the year to $170sqm and the outer central west, where rents increased 36.8 per cent to $186. JLL’s head of industrial and logistics for Australia, Peter Blade, said rents are continuing to increase but the rate of growth is now slowing.

“Though rental growth is slowing, and the heady levels of double-digit quarterly rental growth being pushed through the market in the September quarter are behind us, lease negotiations remain in favour of landlords,” Mr Blade said. “Rents are either stable or increasing in all markets and incentives continue to tighten in most markets.”

“Throughout 2022, the extreme scarcity of space options has resulted in steep rental increases and declining incentives but also examples of tenants settling for leases for buildings that are much smaller or much larger than required or in non-preferred locations, often on short lease terms.”

One of the key drivers of rent growth over the past few years has been a lack of supply and construction not being able to keep up with demand. However, in the final quarter of 2022, there was 689,260sqm of gross take-up of logistics and industrial space. This was last year’s lowest quarterly reading, but was still above the 15-year quarterly average of 606,100sqm.

JLL’s head of strategic research in Australia, Annabel McFarlane said developers are starting to ramp up construction to meet the record demand.

“We expect conditions to ease for tenants in 2023, rental growth rates to moderate and declining incentives to stabilise,” Ms McFarlane said.

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