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The record growth of the sector may be a thing of the past, according to one of the major commercial firms.
According to Savills Australia’s recently released update on the industrial sector, rental growth has come to a standstill across Australia’s three largest core industrial markets – Sydney West, Melbourne West and Brisbane Southside.
The change can be largely attributed to stabilising vacancy rates, following extremely tight conditions over the last three-and-a half years, reaching a peak in late 2023. But as 2024 has progressed, conditions have noticeably relaxed.
“Signs of deceleration have been evident throughout 2024, with both rental growth and speculative construction rates gradually declining. Vacancy rates have also increased, marking a significant shift in supply and demand dynamics following record low levels in 2023,” commented Savills’ national head of research, Katy Dean.
The third quarter of 2024, however, brought welcome signs that the sector was not in for a bubble burst, with Q3 showing no movement in average prime net face rents across the largest core markets. By comparison, Q2 recorded a complete halt in upward movement, with some markets even contracting.
But in Q3 some of the smaller markets recorded a quick bounce-back, with both Adelaide North-West and Perth’s core experiencing increases, at 2.9 per cent and 3.2 per cent respectively. These results were driven by high-end facilities, according to the real estate firm.
Dean noted, however, that effective rents have faced significant pressure due to rising incentives, which have doubled in some submarkets over the last 12 months.
“This increase has led to negative net effective rental growth, especially in submarkets where net face rents have either contracted or stagnated. In Sydney’s West, net face rents adjusted downwards in Q2, and average prime incentives have risen from 7.5 per cent in 2023 to 17.5 per cent in 2024, resulting in a nearly 10 per cent decline in net effective rents over the past year,” she commented.
Q3 brought relief here as well, with Savills reporting that the quarter brought some stability to average incentive levels, with most markets showing no change over the last three months.
In the firm’s view, this should aid investor confidence in the near term, helping landlords to keep their lease terms competitive and preserving the reversionary value that built up over the last three years. According to Savills, national prime net face rents are still about 50 per cent higher than the same period in 2021, and over 60 per cent higher than in 2019, on average.
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