BRISBANE SOUTHSIDE INDUSTRIAL LEASING MARKET
The Brisbane Southside Industrial Leasing Market has performed strongly in the September quarter 2017. An analysis of leasing data by specialist industrial property consultants King & Co of established industrial buildings shows that for the September quarter 2017, average industrial rentals for established stock grew by 14.75% to average $116.12 per square metre over the corresponding period in 2016. This is a strong result as the volume of leasing transactions actually fell for the same period from 92 to 74 transactions. This suggests a reduction in available stock in the market as well as increased demand for industrial accommodation. This trend of increasing demand should see rents continue to rise and length of tenure increase into the medium term.
In addition to the large increase in average rentals over the 12 months, other market indicators also showed strong increases. The volume of accommodation leased rose by 12.4% to 185,583 square metres with an average tenancy area of 2,508 square metres. This compares to an average tenancy area of 1,795 square metres for the September quarter 2016. This is a very strong result for a market that is perceived to be under performing at present.
Another strong indicator from the analysis is the average lease term. Typically established buildings are generally older stock and struggles to get good lease tenure, however the analysis shows that the average lease terms for the transactions analysed rose by 8.32% to 3.32 years. The analysis excludes monthly and short term leasing arrangements which are a feature of some older buildings in the established southside suburbs.
There is good news in the monthly and short term leasing market also, with the average rent increasing by 14.22% to $57.82 per square metre from the September quarter 2016 to the September quarter 2017. This rental increase was delivered on the back of lower absorption of only 28,090 square metres and lower transactions, down from 34 to 27 transactions in total. The analysis of this market is not as extensive as that for the whole of the established southside market, but the sample analysed is considered to provide a pretty good indication as to market activity.
In another round of good news the established southern suburbs of Rocklea, Acacia Ridge, Coopers Plains and Archerfield all performed strongly over the same period. These suburbs represented 22.57% of the total stock leased in the September quater 2017, at an average rental of $94.21. In the corresponding period in 2016, these suburbs represented 25.38% of the stock leased, but the average rental was only $87.69. The increase in average rent of 7.44% is a very promising sign for these suburbs which had been under pressure over recent years due a struggling transport and logistics sector, which dominates this market.
In an attempt to get a more realistic indicator of market activity in the southside industrial leasing market, the King & Co analysis deliberately removes design and construction activity. The Design and construct market is a legitimate market in its own right, but is dominated by institutional owners and corporate style tenants and is considered less transparent than the leasing market for existing stock. Economic and financial factors such as land cost, construction costs, tenant specific requirements and lease incentives all play a role in influencing the design and construct market, whereas the established leasing market is a broader and more genuine indicator of economic activity in the southside industrial employment hubs. This is an attempt to get a real guage on the pulse of the southside industrial lease market.
Peter Roberts
Director Professional Services & Property Management
Nov 2017