More than 560,000 square metres of speculatively built industrial property is set to be completed on Australia’s east coast this year.
That number smashes the record set last year when developers built 422,000 sqm of warehouses prior to tenant pre-commitment in Sydney, Melbourne and Brisbane.
Melbourne’s western suburbs are expected to see the most upcoming development activity, according to this new national research by Knight Frank, Pushing the Button – Eastern Seaboard Industrial Development – July 2019.
The precinct is heralded as being amongst the cheapest in which to rent industrial property nationally, while also being one of the most convenient, between Melbourne Airport and Port of Melbourne, and well serviced by road and rail infrastructure.
Speculative development in Melbourne
The volume of speculative industrial development across Melbourne is set to reach 280,000 sqm this calendar year.
This is more than double what was recorded in 2018 (110,00 sqm), Knight Frank said.
“Although REITs and private developers are focused on building future develop-able land supplies through acquisitions, there remains a clear focus on current speculative demand for construction-ready modern and efficient facilities, particularly from the transport and logistics sector”.
Speculative development in Melbourne’s west
About 142,334 sqm of speculative development is due to be completed in Melbourne’s west this year.
This is an increase on 2018 (87,390 sqm) and 2017 (85,262 sqm).
“Just over half of Melbourne’s industrial spec development pipeline for 2019 is concentrated in the west (51 per cent),” Knight Frank said.
The second largest share of speculative development activity is originating from the south-east (32 per cent).
“While the 88,464 sqm of spec due to come online in the south-east during 2019 is up on the 11,593 sqm recorded in 2018, the figure is still below the 2018 level of 110,451 sqm”.
Melbourne’s north is expected to account for around 18% of speculative developments this year, Knight Frank estimates.
Melbourne’s potential for industrial oversupply still a factor
On average, it takes two months post-practical completion for a speculatively built Melbourne facility to lease.
“While take-up time in Melbourne is slightly longer than in Sydney, which averages one-month pre-practical completion, this can be attributed to there being more space available in Melbourne which allows prospective tenants more time to inspect properties to ensure the layout meets their needs,” Knight Frank said.
That said, half of the year’s speculative developments in Melbourne’s west are gone
More than half of the speculative industrial projects due for completion in Melbourne’s west this year have been leased or sold.
According to Knight Frank, many occupiers are trading -up – a trend called a ‘flight-to-quality’ in commercial property circles – when seeking new premises.
If the occupier can get onto a speculative development during the construction stage, some purpose-built elements can often be incorporated into the design – for example, a higher office component.
Occupiers tend to inspect properties under construction as there is a firmer commitment that the building will be completed by a due date.
According to Knight Frank, a burst of speculative industrial development in the west which started in late 2018 will see most of the projects delivered in the third quarter of this year.