_Industrial: Adapting to the Supply Crunch
Across the East Coast, vacancy in industrial markets is at record lows. The shortage of space has come about as a consequence of structural change which has required retailers and 3PLs to scale-up and also shifted the goalposts for delivery time expectations and warehouse efficiency.
While tenant demand is expected to remain robust, we expect the focus to shift to strategic improvement and upgrading of the whole distribution network, rather than rapid upscaling. Optimisation will encompass cost, location, design, operational and environmental considerations to maximise returns from significant recent investments in property and technology. The industrial portfolio of the future is expected to be more real-time tracked, physically distributed and flexible than ever before.
Structural undersupply in industrial markets will not be resolved until more developable land comes online
Undersupply in the Australian industrial market has previously been a short-lived event with relatively quick construction and planning timeframes – compared with office and retail assets – meaning imbalances are typically corrected within a year to eighteen months. However, over the past two years, the strength of demand has overwhelmed the capacity of the supply-side to keep up. The market will welcome a record year for development completions in 2023, led by Brisbane and Melbourne, but this is still likely to be insufficient to restore a more normal balance between supply and demand, particularly in Sydney, with an equilibrium unlikely to be restored until a larger quantum of developable land comes online in 2024‑25. With tight supply set to continue, we expect further rental uplift, but at a slower pace than the frenetic speed of 2022.
Keen to learn more? You can check out the Top Ten Insights from our Outlook Report 2023 or read the report in full via the links below:
For more information, please reach out to the team:
Ben Burston
Chief Economist
+61 2 9036 6756
ben.burston@au.knightfrank.com
Michelle Ciesielski
Partner, Head of Residential Research
+61 2 9036 6659
michelle.ciesielski@au.knightfrank.com
Jennelle Wilson
Partner, Research
+61 7 3246 8830
jennelle.wilson@au.knightfrank.com
Lawson Katiza