Melbourne logistics property rents on rise

CBRE puts continued demand down to continuing record trade through the port

February 15, 2012

Another facet of Australia’s multi-speed economy is being reflected in Melbourne’s transport and logistics real-estate market, with rising rents put down to record trade through the port of Melbourne.

Property firm CBRE says large scale retailers and logistics operators are the most active in the market, driving demand for strategic industrial assets, with a consequent upward pressure on rents.

Meanwhile, in the face of tough economic times in eastern states and sectors not exposed to the mining and resources boom, speculative development was also occurring and was likely to continue through the calendar year.

"A slight reduction in industrial production has been counterbalanced by growth in imports due to a high Australian dollar," Global Research and Consulting analyst Chris Holgar says.

This resulted in the Melbourne industrial sector outperforming other Australian industrial markets over the course of last year as container throughput at the port continues to grow.

CBRE’s latest Melbourne Industrial MarketView report shows that Melbourne distribution centres recorded the most significant increase in rents last year at 5 percent, following by units estates at 4.3 percent.

CBRE Victorian State Director, Industrial & Logistics Services, Dean Hunt reckons development activity had been patchy last year with a total of 448,657 sq m of new industrial space built last year, predominantly in the West and South East sub-regions.

He expects development activity to improve this year, driven by a continued reduction in vacancy and uplift in enquiry.

On the investment front, Hunt says activity had also dropped in the second half of the year with a total of 12 sales recorded for a total of $170.7 million compared with $273 million in sales in the first half.

Foreign buyers have dominated activity in the $10 million+ category, with strong interest from Australian real estate investment trusts (A-REITs) having also emerged in recent months.

"While industrial property has not historically been on the radar of foreign investors, it has become an attractive investment option in recent times," Hunt says.

"This is due to adjusted pricing, strong cash flows coming from quality lease covenants, the relative strength and transparency of the market and key industrial indicators heading in a positive direction, backed by a stronger economic outlook."

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