Melbourne vs Sydney: Industrial rent gap grows to 90%

An industrial facility at Ingleburn in Sydney’s West.

The disparity in residential property prices between Sydney and Melbourne is also manifesting in the industrial rental market, where the price gap has widened dramatically over the last five years, according to new figures.

CBRE research contends that super prime rents in Sydney have ballooned from a 40% premium over Melbourne’s prices to more than 90%, between 2012 and 2017.

The agency’s “Why pay Sydney rents” Viewpoint article suggests the gap between Australia’s two largest industrial and logistics markets is down partly to land availability, with Melbourne having had two million square metres of warehouse space added to the market since 2014, while in Sydney there was 20% less over the same period.

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In Melbourne, supply has also trumped demand, leading to shrinking rents and a significant boost in incentives, from an average of 7.5% in 2012 to 25% in 2017.

But according to CBRE, the tables could be about to turn.

CBRE research analyst James Melville says the size of the difference between the two markets is not sustainable, and relief could soon arrive for Sydney.

Melbourne industrial Sunshine West CBRE

An industrial facility at Sunshine West in Melbourne.

“The higher rents in Sydney will encourage further development of industrial stock and, eventually, see the rent spread diminish,” Melville says.

“The ground has already broken on the Moorebank Intermodal Terminal, with the supply pipeline already 60% higher in 2018 compared to 2017.”

But in the meantime Melbourne remains significantly more attractive from a price perspective, Melville says.

“With the rent spread increasing, Melbourne is an attractive location for industrial occupiers, offering excellent access to international and interstate freight gateways.”

“While Sydney is larger, these cities are not drastically different, however for occupiers considering relocation, the potential savings in rent and operating costs are overshadowed by the significant relocation costs.”

Prices to buy industrial properties are similarly disparate in the two major cities, with properties in Sydney commanding prices around double what buyers would pay for similar properties in Melbourne.