The industrial property market has seen the vacancy rate hit another new record low despite projections of a surge in supply this year, according to a report by Knight Frank.

The Australian Industrial Review Q1 2023 found that Sydney is the tightest market in the East Coast with only 43,759 square metres available, a 51% contraction, while Melbourne has 174,330 square metres, and Brisbane has 226,592 square metres.

The overall drop in vacancy across the major East Coast cities follows a 56% fall over the 2022 calendar year, and an 8% fall over Q4 2022 to see vacancy sit at 547,748 square metres

Across Australia’s East Coast, there is almost 2 million square metres less space available now than the peak in October 2020, when there were 2,405,857 square metres available, equating to an 82% fall.

Knight Frank Partner, Research and Consulting, Jennelle Wilson, said take-up over the first quarter of 2023 was impacted by the limited opportunities on the market, being 26% below the three-year average, totalling 515,653 square metres.

Ms Wilson said that there is an intense competition among tenants for limited available space resulted in further rental growth across all the Eastern Seaboard capital cities.
 

Ms Wilson added, “Brisbane led the quarterly rental growth by an 8.6% increase, followed by Sydney at 8.2%, with this city overtaking Perth for the fastest growing rents year on year, with prime rents up by 38% over 12 months.

Adelaide and Perth reported 2.5% and two per cent rental growth over the same period, while Melbourne saw moderate growth of 1.5% on limited deals across most submarkets. Incentives continued to decline in Q1 and currently average 10% across the Eastern Seaboard, which stimulated stronger growth in effective rents over the quarter.”

According to Knight Frank data, both prime (340,921sqm) and secondary industrial space (103,760sqm) are at record lows as tenants compete for space. Knight Frank National Head of Industrial Logistics, James Templeton said ongoing strong tenant demand was being met with constrained supply, which had led to increased competition.

“Secondary vacancy is now particularly low as tenants are grabbing immediately available options, with less of a concern regarding grade as long as it is functional,” Mr Templeton said.

“Prime vacancy is also seriously low, however, this grade is being somewhat replenished as speculative developments start construction. “Indeed, speculative space accounts for more than two-thirds of the current vacancy – with almost 194,500 square metres of this still under construction and not available for imminent occupation.

As existing options have been absorbed, speculative developments have taken a greater weighting in available space.”

Mr Templeton said the gradual easing of material cost and supply chain pressures should aid the Eastern Seaboard supply pipeline, allowing it to reach a record of circa 2.5 million square metres in 2023.

He added, “However, 43% of the pipeline is already pre-committed and 10% is owner occupied, so it is unlikely that we will see a significant amount of speculative space entering the market and alleviating the current widespread undersupply.”