Perth Commercial & Industrial Property Market Review - September 2024
“Capital values have continued to reach record levels.”
Perth’s industrial market has performed well across the first half of 2024, with demand driven largely from owner occupiers and tenants, who continue to compete for a limited supply of stock across all precincts.
Rental vacancy remains at record lows, with all stock and precincts experiencing rental growth at an average of 6.2% across the quarter (q/q) and over 30% compared to pre-COVID levels. Super prime industrial stock is achieving net face rents in the order of $170/sqm (6.3% q/q), prime rents averaging $140/sqm (7.7% q/q) and secondary stock averaging $120/sqm (4.3% q/q). Inline with growth in face rents, leasing incentives are sub 5%, with the exception of several deals whereby properties are held institutional owners.
Capital values have continued to reach record levels, particularly in the sub $5million dollar range, whereby owner occupiers continue to ‘out-compete’ investors, who have somewhat retreated from the market in light of debt pressures. With rents at record high levels, and extremely low rental vacancy, owner occupiers are offering premiums (above investors) for property that is still at an occupation cost (i.e. mortgage repayments) that proves more competitive than renting.
Yields have softened slightly across the quarter, in the order of 25bps. The average prime yield now sits between 6.00% - 6.50%, with all but modern, core located stock considered to fall towards the upper end of this range. Secondary yields are averaging 6.50% - 7.00%, with variation in yield largely a function of age, quality of improvements, lease covenant and income reversionary (growth) potential.
Land values have continued to escalate across all precincts. Several recent sales in core areas of Welshpool/Kewdale area reflecting land value rates of $750/sqm - $850/sqm on sub-5,000sqm lots and $550/sqm - $650/sqm on larger 1-5Ha lots. This reflects a change of circa 10% year-on-year and in order of 35% above pre-pandemic levels.
Land supply remains constrained, despite several land releases in the northern and southern regions. Supply of built-form product from developers has been limited, as elevated construction costs, debt pressures and high land prices challenge the feasibility of these developments.
Whilst conditions in the broader economy present some uncertainty, and the potential for some normalisation in occupier activity, we anticipate continued demand across both land and built-form product, underpinned by strength in the resources sector and large public infrastructure projects across Western Australia.
Chris Chesky, MLV Real Estate