Supply of industrial and logistics space slide due to ongoing delays

Australia’s new supply of industrial and logistics space is set to drop by 600,000sqm due to construction delays and rising costs, according to a new report from CBRE.  

CBRE Research’s Q3 2022 Industrial and Logistics Figures report found that the nation’s pipeline outlook for the year has slid from 2,700,000sqm to 2,100,000sqm, nearly a quarter of the original prediction. 

While the overall pipeline for 2022 has downgraded, a total of 654,000sqm of new supply did come online in Q3. This brings the year-to-date figure to 1,400,000sqm, just a bit under the long-term average of 1,500,000sqm.  

The challenges across the industry have resulted in major delays to projects by up to one year, with some being cancelled altogether.

Cameron Grier, Regional Director, Industrial & Logistics, Pacific at CBRE, said that these stem from construction delays caused by wet weather and labour shortages.  

“Developers are simply not able to bring on space swiftly enough, with long delays in planning approvals in some states and construction delays caused by wet weather and labour shortages,” he said.

Australia’s national industrial and logistics vacancy rate sits at a world-low of 0.8 per cent. Sydney has the lowest in the country at 0.3 per cent, while Brisbane has the highest at 1.4 per cent. 

Price hike on rents 

CBRE Research’s report also found that rising costs were attributed to material shortages and supply-chain disruptions.

“Coupled with the lack of supply being brought to market, when you overlay some 40 per cent increase year-on-year in construction costs and softening cap rates, it’s putting even further upward pressure on rents to hit the new return hurdles of investors,” Grier said. 

He also revealed that occupier demand continues to outstrip supply in most capital cities. 

Weighted-average net face rents for super prime facilities have risen by 19.2 per cent year-on-year, with the national average now sitting at $134/sqm following Q3’s further climb of 6.7 per cent.  
 
Older facilities have also seen considerable rises, with weighted-average net face rents for prime- and secondary-grade assets up by 18.6 per cent and 16.0 per cent respectively this year. 
 
Sydney and Perth have recorded the largest 2022 rises to date, climbing at 29.6 per cent and 24.3 per cent y-o-y for super-prime assets. 

Perth’s Q3 rise of 9.3 per cent is currently the nation’s biggest. 
 
“Q3 was another quarter of record-breaking rental growth in Australia’s industrial and logistics market,” said Sass J-Baleh, Head of Industrial & Logistics Research Australia at CBRE.
 
“To bring the Australian market to a state of equilibrium, around 3.7 million sqm of space is required,” J-Baleh said. 

She said, however, that only 2.5 million sqm of space is under construction.
 
“Therefore, we can expect strong real rent growth to continue over the next three years, averaging at just over 6 per cent per annum,” she said. 

Source: CBRE media release