New report highlights market resilience amid supply-demand imbalance
The industrial market continues to be favoured by many investors, despite the ongoing imbalance between supply and demand, according to a property valuation and advisory firm executive.
In the latest Herron Todd White (HTW) monthly review, retail director David Walsh (pictured) noted that the industrial market has kept its resilience, though not as robustly as in the preceding two years.
The trend, he said, can be attributed to increased borrowing costs that have decelerated the market at large, especially affecting commercial yields, with the swift rise in interest rates and the uncertainty surrounding their stability becoming a major concern.
“Throughout the year, it became apparent that owner-occupiers were the predominant buyers, seizing opportunities while investors grappled with elevated debt costs and their returns on investment,” Walsh said.
“Research reported that from the second half of 2019 to mid-2023, the insatiable leasing demand for industrial property across the country saw the average industrial vacancy rate fall from around 6.5% to a mere 0.5%. This sharp reduction in vacancy led to substantial and somewhat unprecedented hikes in rents.”
Walsh, however, said the surge in rental prices is expected to slow down as developers are adding to the market’s supply through speculative construction and the delivery of several pre-committed projects.
“Analysis from across our capital city markets would suggest that this extreme rental growth will return to more normal levels throughout 2024 and along with this increased supply, it is likely that we will see vacancy rates increase in 2024, albeit only slightly from their record lows,” he said.
The HTW March 2024 Month in Review report also noted the high demand in both prime and secondary assets over the past three years. However, as the supply expands and more leasing opportunities arise, differences in demand levels between prime and secondary assets are expected to become more apparent, according to Walsh.
“Essentially, core fundamentals are expected to return, with strategically located assets near major transport hubs continuing to be highly sought after,” he said. “Last mile assets will also continue to be highly sought after by e-commerce users as a significant portion of tenants require proximity to densely populated areas as this facilitates more efficient supply chain logistics.
“This normalisation notwithstanding, certain regions of the country, such as Brisbane and Sydney, still face significant land shortages. Coupled with challenges in construction costs and the feasibility of projects, delivering profitable supply remains a difficult task.”
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