Delays and rising costs reduce pipeline of industrial and logistics space significantly, CBRE reveals

The national industrial and logistics vacancy rate was at a low of 0.8 per cent, with the lowest and highest rates across the country being in Sydney. Picture: NCA NewsWire / Andrew Henshaw

Construction delays and rising costs will slash the nation’s supply pipeline of new industrial and logistics space by about a quarter of expected levels this year.

These bottlenecks had pushed back the development of about 600,000sq m of space across the ­nation’s five major cities, from 2.7 ­million square metres to 2.1 million square metres, according to CBRE.

Some projects have been delayed by up to one year, or cancelled altogether, as a result of wet weather and labour shortages, which have caused construction delays, as well as rising costs based on material shortages and supply-chain disruptions.

At the same time developers are under pressure to keep up with occupier demand, with large multinationals and listed companies having first claim to the available space.

Supply already looks tight.

About 41 per cent of the forecast 2023 supply pipeline of 2.5 million square metres was already the subject of precommitments, CBRE said.

The national industrial and logistics vacancy rate was at a low of 0.8 per cent, with the lowest and highest rates across the country being Sydney’s at 0.3 per cent and Brisbane at 1.4 per cent, respectively.

CBRE regional director of Pacific, industrial and logistics services Cameron Grier said occupier demand continued to outstrip supply in most capital cities.

“Developers are simply not able to bring on space swiftly enough, with long delays in planning approvals in some states and construction delays caused by wet weather and labour shortages,” he said.

“For some projects, this is adding up to delays of six to 12 months.

“Coupled with the lack of supply being brought to market, when you overlay some 40 per cent increase year-on-year in construction costs and softening cap rates, it’s putting even further upward pressure on rents.”

The weighted-average net face rents for super prime facilities rose by 19.2 per cent year on year, with the national average now at $134 per square metre after a third quarter rise of 6.7 per cent.

“To bring the Australian market to a state of equilibrium, around 3.7 million square metres of space is required and only 2.5 million square metres is currently under construction,” CBRE head of industrial and logistic research in Australia Sass J-Baleh said.

“Therefore, we can expect strong real rent growth to continue over the next three years, averaging at just over 6 per cent per annum.”