After experiencing runaway success since the pandemic in 2019, which turbocharged e-commerce and saw industrial vacancy rates tumble from 6.3% to 0.6%, the uptake of warehouse space shows signs of waning as more of it becomes available for lease in 2024.

What’s stirring the horses is the average national vacancy rate – up for the first time in five years – which rose to 1.1% from 0.6% over the first half of the year.

The second half of 2023 saw vacancy rates rise in all major markets:

• Sydney up to 0.5% from 0.2%.
• Melbourne to 1.6% from 1.1%.
• Brisbane up to 1.4% from 0.7%.

Inflection point?

Does this signal an inflection point for this previously unloved sub-sector of commercial property? CBRE certainly seems to think so.

The last time the national industrial vacancy rate rose was in 2018, well before vaccines, masks and social distancing became de Reiger.

Overall, CBRE data suggests demand is starting to unravel with an increase in industrial vacancy rates in the second half of 2023 – for the first time in five years – pointing to weaker demand amid more warehouse supply coming online within most markets.

As a result, rent increases in expected to be more benign in 2024.

Following two years of rental increases, culminating in a hike of up to 40%, CBRE’s industrial and logistics director, Cameron Grier can’t see it exceed much beyond 4% in prime Sydney and Melbourne markets.

Meantime, rents in Perth, Adelaide and Brisbane in 2024 are expected to flatline.

Admittedly, higher vacancy rates will give occupiers, accustomed to competing for a paucity of available space close to urban centres, more stock to choose from in 2024.

But Grier doubts supply and demand will gravitate back to anywhere near ‘equilibrium settings’ – typically at around 4% – for at least the next two years.

Last-mile and select regional pockets

Nevertheless, despite expectations that it will hold up relatively well in 2024, it’s becoming more evident that the industrial property sector is becoming more binary.

While last-mile, urban infill locations (close to densely populated areas) are being favoured over secondary locations, notably outer metro areas and many regional markets, some regional pockets look set to outperform.

According to national property valuation firm M3 Property,  some regional NSW hubs are expected to experience significant growth in their industrial precincts over the next five to 10 years.

In addition to strong underlying industrial market fundamentals, including key infrastructure investment and population growth, M3 Property believes demand in these precincts is being fuelled by:

• The increasing scarcity of land in Sydney outside of the Western Sydney Aerotropolis precinct.
• Growing affordability concerns and increasing congestion of major road networks throughout metropolitan Sydney.

Newcastle/Hunter Valley, Tamworth/New England and the Central Coast

With diverse local economies underpinned by the healthcare, education, retail, accommodation, professional services and construction sectors – plus good connectivity to major road, rail, port and airport infrastructure – M3 Property director, industrial, NSW Joel Ducey expects Newcastle/Hunter Valley, Tamworth/New England and the Central Coast to led regional growth.

Ducey expects the evolving nature of click-and-collect strategies to continue driving demand for businesses to be located within proximity of key delivery hubs, and to establish bases in these major regional markets.

Other regional markets Ducey expects to experience future growth include the Wollongong/South Coast region and townships such as Orange and Bathurst.

He also sees Tamworth as a significant growth area for industrial given its status as a major hub for the New England region.

“The Newcastle/Hunter Valley region is a priority area, with The Port of Newcastle having recently been designated as a major renewable energy hub for Australia,” said Ducey.

“With the Port currently operating at approximately 50% of capacity, significant growth in trade is predicted over the next 20 years.”

Ducey also points to the strong population growth forecast for these markets, with the Greater Hunter region pegged to grow by 21.93%, from 604,115 in 2021 to 773,825 by 2041.

Then there’s the Tamworth/New England region, where Tamworth Regional Council is forecasting a population increase of 26.84% between 2021 and 2041.

Infrastructure dynamics

To highlight the significance of Newcastle’s infrastructure, Ducey points to the M1 Pacific Motorway extension to Raymond Terrace, bypassing Hexham and Heatherbrae, which will improve connection between the M1 and Pacific Highway for motorists and freight.

This project has commenced and is anticipated for completion in 2028.

Once completed it is expected to reduce travel times and improve connectivity, making the area increasingly appealing for freight and logistics operators.

M3 Property is tracking two major industrial land releases (at varying stages of approval and release) in the Black Hill Employment Precinct at Beresfield, Newcastle incorporating a mix of small lots of up to approximately one hectare and super lots ranging between approximately two and 10 hectares.

“The Black Hill Employment Precinct will be significant, as it will accommodate the first super lot industrial land release in the Newcastle region. Whilst formal marketing is yet to commence, the project is reportedly generating good levels of interest from an array of large-scale end users including logistics, data, storage, trucking/transport, manufacturing and renewable energy operators,” said Ducey.

Meanwhile, in Tamworth, Ducey expects the new Intermodal Freight Terminal Facility – designed and constructed for Qube – to be a catalyst for the ‘Tamworth Global Gateway Park’.

It’s understood the Intermodal Facility, due to be operational in Q4 2024, will move freight from trucks to trains, enabling access to ports while improving delivery times for import and export flows into the region.

“A large area of business-zoned industrial land is also under development within the Tamworth Airport precinct. It is anticipated that this land will accommodate an array of logistics and heavier industrial uses, in addition to some lighter industrial and large format retail-type uses,” concluded Ducey.