Industrial vacancy at historically low levels in WA

The year ahead for WA’s industrial property market is likely to see the continuation of high levels of demand for warehouses and workshop space fuelled by the stellar activity of the mining sector and e-commerce space, experts say.

“From a leasing point of view there is very little stock available, particularly quality stock. The developers – both locals, as well as the institutional developers and investors – are looking for land to satisfy the demand,” Knight Frank head of industrial logistics WA director Geoff Thomson said.

“There is certainly a lack of stock from a rental point of view and people are scrambling to satisfy the demand.”

Vacancy rates fall as industrial space demand booms

PropTrack economist Anne Flaherty said the industrial market had been performing strongly across the country during the past few years and Western Australia was no different.

“We are seeing really strong occupier demand – so people who want to lease industrial property – which is why we have seen vacancy fall from 4.3% in the first half of 2021 to 1.8% in the second half of 2021 and e-commerce is a really big driver of this trend,” she said.

“It was a trend that existed prior to COVID that COVID really accelerated. We have also seen really strong investor demand in the Perth industrial market and that has seen land values increase over the last couple of years and yields come down.”

This 12,500 square metre office warehouse was leased in November to tenants McIntosh and Son, Get A Grip Tyres and Coopers. Picture: Knight Frank

CBRE WA head of industrial and logistics Jarrad Grierson said industrial vacancy was now at historically low levels, which was placing upward pressure on both economic rents and rents for existing stock.

“Continued demand will result in pre-release activity and fuel demand for land,” he said.

“Net absorption of circa 400,000 square metres in the second half of 2021 resulted in a historically low vacancy rate of 1.8 %.

“With combined stock levels totalling circa 50,000 square metres, we anticipate the current level of vacancy to remain low as new existing stock will be quickly absorbed quickly given the current and unsatisfied demand. This is resulting in an increase in rental rates for super prime and prime assets.”

Tenants were being driven by continued confidence and activity in the state’s resource and mining sector, in addition to demand from e-commerce tenants, Mr Grierson said.

“Current pre-lease metrics are placing upward pressure on both pre-lease and existing market rents, with incentives continuing to tighten.”

Perth’s mining sector fuels growth

Perth’s high percentage of workshops driven by the mining, as well as the oil and gas sectors, set the capital apart from the eastern states, Mr Thomson said.

“That’s still busy, and that was extremely busy at the start of COVID,” he said.

“The workshop demand was huge and people were starting to build new ones, they are very expensive to build.

“Yields are very low – in the fours (%) in Perth but the cost of construction has gone through the roof. It costs $1000 a metre [sic] or more for warehouses, which used to be $700. There was a new steel price rise this year.

“While the cost of construction is high… the deals are more expensive to do because of the increased value of the land and the cost of construction but it is offset by absolutely world record yields we are having. So I’m not sure where that’s all going to end.”

Sales volumes break record

Meanwhile, industrial sales volumes in WA totalled $2.5 billion in 2021 according to Real Capital Analytics, which was the highest level on record and more than double the volumes of 2020.

Three units comprise this large modern office/warehouse development which was purchased off market by Borg Manufacturing, who planned to occupy the front portion of the building. The remaining units were leased until 2023 and 2026. Picture: CBRE

Ms Flaherty said in searches of those looking to buy industrial assets on realcommercial.com.au, the search term “storage” was the third most included keyword – an increase of 131% in 2021 compared to 2020.

Among those searching for assets to lease on realcommercial.com.au, “storage” was the eleventh most included keyword.

That was a 108% increase in 2021 compared to 2020.

Osborne Park was WA’s top suburb among those searching to lease industrial space.

The northern suburb made up 6.6% of all searches in 2021 of those searching to lease industrial space, according to the PropTrack industrial snapshot of 2021.

Malaga – in Perth’s east – comprised 5.8% of all searches.

“In terms of where people want to buy Wangara – that’s the most in demand suburb amongst those looking to buy, and Malaga was second,” Ms Flaherty said.