Having witnessed multiple cycles within Perth’s industrial brokerage market over the last 22 years, the current market is experiencing a pretty exciting period.

It’s important when looking at the WA market to compare it with the performance of the national market, which based on tenant demand and vacancy across all metro markets has been outperforming year-on-year since the outset of covid.

What covid meant for the market was a real shift in the way industrial logistics, warehousing and transport logistics sectors operate. Supply chain pressure and review of supply chain operations have seen year-on-year record take-up across metro markets in Australia.

It’s a really strong performing market and when a market performs like this, due to the supply-demand equation, coupled with a few other key drivers, we’ve seen this enormous rental growth story.

Rental growth story

We’re currently tracking this year at a pre-covid average and Q3 data shows the national average is sitting at 1% which is incredible, while WA is sitting at around 1.1%.

I think there’s been a little bit of movement in that in the last few months, particularly with some of the supply and projects we’re going to see coming on-line over the next 12 months.

The long-term average of industrial rental growth across Australia going back 20 years is about 3.5% and the market has seen year-on-year over the last three years over 20% in core markets, which is an extraordinary result.

Year to date, we’re at 2.3 million sqm across the country in terms of take-up compared with 4.8 million sqm last year.

It’s a really strong performing market and when a market performs like this, due to the supply-demand equation, coupled with a few other key drivers, we’ve seen this enormous rental growth story.

This is the reason why industrial logistics at a global level and the allocation of capital – with the preferred region being Australia – is so strong.

The long-term average of industrial rental growth across Australia going back 20 years is about 3.5% and the market has seen year-on-year over the last three years over 20% in core markets, which is an extraordinary result.

There are consistent rents being achieved in Sydney in the vicinity of $250 sqm and that equates to an A-grade building in the city.

Borrowing costs have arguably impacted yields and it’s really being driven by the buyers at the moment.

WA market

For the uninitiated, WA’s industrials market is divided up into three precincts.

• Firstly, there’s the northern corridor, which runs from Osborne Park, Bayswater, Bassendean, all the way up to Neerabup. This is a very localised market with areas like Malaga, Balcatta, and Wangara supporting that urbanisation and residential coastal corridor.

These are strong performing markets with low land supply but very privately driven.

• Then there’s the eastern corridor, which is the areas around the Kewdale, Perth airport, Welshpool precincts, Hazelmere to the north and down into Kenwick/Maddington.

We identify this as our core market that benchmarks in terms of land and rental values.

It’s where the institutional money is willing to play and where the majority of their holdings sit.

We also collect and use Jandakot and Canning Vale as part of our core data. Their logistics hubs and institutional ownership are quite strong throughout those markets.

• Then if you hit the south, you’ve got the Bibra Lakes/South Henderson area where we attract and house a lot of larger industrial users, like refineries, shipbuilding, and down to heavier and larger footprint to the manufacturing and fabrication type.

I think the south has a real future and there’s a lot of interest in that corridor right now, especially with the inner harbour to the outer harbour relocation.

While it’s unclear when this will happen, it will change the face of that precinct quite a bit, given it will be more logistics-focused.

While the instos have arrived [in WA], there are high barriers to entry due to Perth being a privately dominated market in terms of underlying ownership.

But the intergenerational transfer of wealth will be playing out on the industrial landscape over the next five to ten years and it will be really interesting to see if that (75% private/25% institution) ownership structure changes.

Record growth continues and we’re tracking around 18% growth 12 months to today, due to low vacancy rates and strong demand.

Record growth

Record growth continues and we’re tracking around 18% growth 12 months to today, due to low vacancy rates and strong demand.

While we will continue to see rental growth – it is moderating. I think we’ll get to the point where there’s rental growth for the right-sized product in the inner core markets and around the airport locations.

I can report that we have just signed a Heads of Agreement and AFL (agreement for lease) for a 3,200 sqm facility right in the heart of Welshpool at $171 sqm, which I think is going to hold the yellow jersey in terms of industrial rent.

Within this core market, there is definitely rental growth. Occupier demand remains robust and the 4-6,000 sqm building size range is where most activity is located.

Transport and warehousing logistics

We’re attracting around 117,000 sqm of actual buyer demand in the market ranging from 3,000 to 20,000 sqm.

If you look at the overall demand pie over the last couple of years, it’s definitely transport and warehousing logistics-focused, due to e-commerce tailwinds and a resurgence in demand for manufacturing facilities to mining services.

If you break up the demand pie 75% is logistics and 25% is mining services manufacturing.

But of that logistics piece of the pie about half is resources related. So if you’re going to look at where risk might sit in the demand side of the equation, if the mining and particularly iron ore sector slows up, you might see a bit of demand come out of that market.

So off the back of two really strong years in terms of volumes, it’s been difficult to transact this year and we don’t expect that to change given where the official cash rate is.

Price discovery

On the price discovery front, yields have softened in response to funding pressures.

The bid to ask spread is a hard one to close and there’s been one deal over $10m in this market this year in the logistics investment space. It was sold to the government as part of their acquisition program for the inner harbour to the outer harbour relocation.

So off the back of two really strong years in terms of volumes, it’s been difficult to transact this year and we don’t expect that to change given where the official cash rate is.

Our market has only seen the introduction of incentives since the institutions arrived, and while on average incentives are around 5%, they are going north quickly.

Pipeline

Between now and the middle of next year, we’re tracking around nine facilities at an average size of 6,350 sqm in the eastern corridor of Kewdale, Welshpool, Hazlemere, Maddington, and Kenwick – and this is a really healthy supply.

In the south, there’s a really interesting supply metric, with 12 facilities – with a big average building size of 9,286 sqm – considering the majority of inquiries are between 4-6,000 sqm.

So I think this southern corridor is going to create some sort of inflection point.

If you look at who’s going up against each other, it’s the likes of Dexus up against Centuria, Altis Property Partners (now Barings), and Fife Capital and they’re going to be really aggressive for the right tenants.

So the pipeline is healthy for the market, and if it performs the way we think it will then most of it should be taken up. But changing vacancy rate dynamics will change the deal metrics we’re going to be seeing.

Meanwhile, in the capital market space, there’s been a huge adjustment on 2021/2022 pricing and we think yields have expanded in WA by around 1.25% and 1.75% for prime assets and 1.50% – 2.00% for secondary assets.