Land demand turns Melbourne industrial fortunes around

The Key Industrial Park at Keysborough, which was leased earlier this year.

Melbourne industrial rents grew for the first time in 20 years during the first quarter of 2016, according to new data.

Leasing research from Savills shows a Victorian manufacturing boom over the past 12 months has driven a 36% increase on the five-year leasing average, with Sydney also showing significant improvement.

Industrial leasing in Melbourne is up nearly 90,000sqm on the same time last year and more than 230,000sqm on the last five years, according to the data.

Sydney also enjoyed a strong quarter, courtesy of growth in the pharmaceuticals and logistics industries, with the two cities accounting for 1.96 million square metres of the almost 2.7 million square metres of industrial space leased across Australian in the 12 months to March.

For the first time in 20 years we are seeing rental growth in Melbourne, while a 20% jump in land values over the last 24 months is now also driving rental growth in Sydney

Savills’ national head of research Tony Crabb says Australia’s industrial market is slowly clawing back ground after the end of the mining boom.

“This is just what the doctor ordered. The end of the mining investment boom meant the national economy had to look to other sectors to drive growth and that is clearly what is happening,” Crabb says.

“The lower Australian dollar has played no small part in the resurgence of the manufacturing sector, especially in Victoria, Australia’s manufacturing heartland, and that has been the key to a much more lively industrial market, while the drop in the oil price has been a timely boost for the transport & logistics sector.”

But the result again highlighted the two-paced nature of Australia’s market, with industrial leasing in Brisbane, Adelaide and Perth down more than 34%, from 1.1 million square metres to just over 731,000sqm, over the past 12 months.

The performances of Australia's capital city industrial markets were poles apart. Source: Savills Australia Research.

The performances of Australia’s capital city industrial markets were poles apart. Source: Savills Australia Research.

Savills’ head of industrial, Darren Curry, says land demand is at the heart of Melbourne’s industrial leasing revival.

“For the first time in 20 years we are seeing rental growth in Melbourne, while a 20% jump in land values over the last 24 months is now also driving rental growth in Sydney, particularly in South Sydney and Western Sydney,” Curry says.

“We are now seeing the emergence of a new speculative industrial construction push and that is driving land values around key transport routes.”

Among the key leasing deals ticked off across Melbourne recent months were CEVA Logistics’ uptake of almost 90,000sqm of space at West Park Industrial in Truganina and Unilever’s lease of 46,231sqm in Tullamarine.

Logistics giant DHL took out 31,080sqm at Oakdale Industrial Estate in Horsley Park, while dairy producer Murray Goulburn leased 46,231sqm at Austrak in Somerton.