_Australian East Coast Industrial vacancies hit four-year lows after a 10% fall in the past quarter

Australian East Coast industrial vacancies have continued to fall during Q2 2017 with falls of 20% in Sydney, 8% in Melbourne and a 6% reduction in Brisbane, consolidating the gains made earlier in the year.

Jennelle Wilson August 10, 2017

The total industrial vacancy on the Australian East Coast currently sits at 1.75 million square metres, reflecting a 10% drop over the past quarter and a substantial 23% drop during 2017. The Sydney market has recorded a new record low while vacancy in Melbourne and Brisbane is at the lowest levels seen in more than two years as these market continue to drop from the peaks recorded late 2016/ early 2017.

The annual take-up for vacant industrial space broached two million square metres for the first time in 2016/17, a record high, and 25% above the levels recorded in the previous year. This was demonstrative of an active occupier market with both 3PL providers and retailers actively seeking new and more efficient space across Australia. This high take-up even excludes pre-commitment activity which has also remained strong and underlines the improvement in demand we have seen for industrial space across the East Coast.

The tightest market was Sydney where the availability for buildings 5,000sqm+ was a skinny 314,490sqm, especially when considering the Q2 take-up was a substantial 237,453sqm. This means that competition for available stock in Sydney is at an all-time high, although is expected to ease later in the year.

The Melbourne market has continued to record solid gains with three consecutive quarters of reduction bringing the vacancy to 870,000sqm, down by 20% from the series high in October 2016. Similarly the Brisbane market has also fallen substantially from its recent peak, with the current vacancy of 565,905sqm down an impressive 24% from the high point recorded at the start of 2017.

Across the East Coast, most of the improvement over the past quarter has come from the prime market, falling by 13% with solid absorption in this space across the three cities, while secondary vacancy only decreased by 4%. The balance of space available is 57% within prime accommodation and 43% in secondary space.

The prevalence of prime space was most noticeable in the Sydney market with 69% of current vacancy classified as prime with Melbourne relatively similar at 62%. In contrast, the Brisbane market vacancy remains dominated by secondary space, accounting for 58% as the recycling of older assets for redevelopment or a change of use has been slower and demand has remained focussed on prime space.

The results clearly indicate the continued trend towards tenants consolidating from several premises and upgrading their accommodation with 67% of take-up for the quarter coming in prime accommodation. This demand for new or high quality space has continued to fuel the success of speculative developments with 66,313sqm of speculatively developed stock taken up during the quarter – dominated by absorption in Brisbane (36,700sqm) and Sydney (24,459sqm).

Total available speculative space has fallen over the past quarter to be 286,410sqm, made up of 164,088sqm of completed speculative space and a further 122,132sqm under construction. This is dominated by Melbourne with 72% of the space followed by Brisbane with 19%. The Sydney speculative stock remains especially low at 9% or 26,850sqm, with the average time on the market for speculative space in the city at 1.6 months, to satisfy this demand further speculative commencements are expected in the short term.

For more detail please see the individual reports Sydney, Melbourne and Brisbane.