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Warehouse Construction To Rebound

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Warehouse Construction To Rebound. 


According to JLL, the total supply of new warehouse space fell by almost 1 million square metres last year (to 1.94 million sq m) as higher costs weighed on construction. Despite completions remaining above the 10-year average, there is still a growing level of undersupply across the major industrial precincts around the country.


Melbourne’s south-east, Sydney’s outer south-west and inner west and Brisbane’s southern market are expected to be the areas that see the largest uptick. Two million sq m of new warehouse space is under construction this year and a further 700,000 sq m of facilities have been approved.

Meanwhile, next year’s total development pipeline is currently at 4.7 million sq m – of which 500,000 sq m is already under construction and the remainder is either approved or awaiting approval.

JLL’s Head of Strategic Research for Australia, Annabel McFarlane, said supply levels are rising from a low level. “The thing that everyone is talking about is whether we are going to end up with an overshoot of supply,” Ms McFarlane said.

Last year’s slowdown in warehouse completions came as demand weakened by 26 per cent compared to 2022. Ms McFarlane said occupiers were getting organised and pre-committing ahead of time. “They now have confidence because it goes both ways with the stabilisation of the cash rate,” she said.

“Businesses can also make decisions based on that, and we’re seeing much more of that at the start of this year.” Ms McFarlane said demand had accelerated with sites under construction carrying healthy levels of pre-commitment, which would keep the risk of higher vacancy in check. “Developers are likely to postpone construction starts in these markets until an occupier is secured,” she said.

Other factors that will help drive a strong pick-up in demand and flow through to a higher level of industrial completions include strong population growth, increasing e-commerce demand, limited space availability and strong rental growth.

JLL’s head of logistics and industrial in Australia, Peter Blade, said the economic outlook is positive for industrial. “On the positive side for occupiers, a more neutral economic outlook in 2024 is giving confidence to many groups that were delaying decisions on space requirements as rents accelerated,” Mr Blade said.

“Strong rental growth is likely to give way to more moderate rental growth throughout the year… At the same time, we are likely to see divergence in performance between prime and secondary-grade assets and increasing focus on sustainability features in buildings,” Mr Blade said.

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