October 2018 :: Trends and Insights
SHORTAGE OF INDUSTRIAL LAND IN SYDNEY PUSHES UP VALUES TO NEARLY FOUR TIMES THAT IN MELBOURNE!
Industrial land in Sydney is worth almost four times what it is in Melbourne, with soaring prices in the harbour city driven primarily by land shortage.
Buyers would need to fork out an average of $1018 for a square metre of industrial land in Sydney, compared with $259 in Melbourne and $373 in Perth, according to the latest Colliers International research.
Sydney, which has the highest industrial land values of all capital cities, shot up by 14 per cent in the 12 months to September 2018, while the prices in Melbourne surged even more, at 29 per cent.
But industrial land prices in Perth saw a decline of 4 per cent in the same period.
In Brisbane, land values picked up 9 per cent, reaching an average of $259 a square metre, while in Adelaide the average rate is $249 a square metre, which was down 1 per cent.
Colliers International’s managing director of industrial Malcolm Tyson said there were multiple industrial sub-markets in Sydney; some of them valued more than others.
He said the diminishing supply of land was lifting land values in Sydney.
“Sydney is a land-constrained market, and it’s becoming increasingly land constrained on the count of the geographical boundaries that we have,” he told Commercial Real Estate.
“You drop an airport in the middle of it, that does absorb quite a lot of land. It’ll also unlock a lot of land, but it does put pressure on land values, as occupiers and investors look to secure their future land banks.”
The stronger growth of Melbourne compared with Sydney could be attributed to Melbourne coming off a lower base, but the land constraint issue was far more critical in the harbour city than it was in the Victorian capital, Mr Tyson said.
“In some parts you definitely do (see a land squeeze) – Port Melbourne at Fishermans Bend and, to a degree, the south-east markets have got land constraints. The north and western markets are less land constrained, and therefore land values don’t quite reach the same heights as it does in Sydney,” Mr Tyson said.
The market is not ready for multi-storey warehouses yet, but it could become more feasible in the next few years.
While multi-storey warehouses have been tipped for inner Sydney, the market is not yet at a point where land supply is depleted and rents unaffordable enough to justify building vertically.
“You want to get to the point where you’ve totally exhausted land supply (before considering multi-storey warehouses); it’s the only way to get new facilities to go vertical. We’re not at that stage yet,” Mr Tyson said.
“I think the market at the moment is balanced, we’ve got a reasonable level of demand but not a lot of supply, especially in Sydney.
“There will be a point where it will become economically feasible for occupiers to pay for a multi-level building.”
The case for multi-storey warehouses in urban areas will “strengthen” in the next few years, Colliers International’s Industrial H2 Research and Forecast Report wrote.
Currently, interest in vertical developments was coming from the investor market looking to provide suppliers with a new type of product.
“The balance is construction costs versus economic rents and land value of course,” Mr Tyson said.
The average prime yield for prime industrial assets in Sydney has tightened to 5.26 per cent, with rental growth lagging behind the surge in land prices.
Average industrial prime net face rents for Sydney increased by 2.3 per cent to $144 a square metre in the 12 months to September 2018.
