West Australian Commercial & Industrial Property Market Review - March 2022
Perth’s industrial market has continued to strengthen into 2022, coming off the back of strong growth over the past 12 months, with improved sentiment, lower vacancy, rising rents and yield compression – the result of unprecedented levels of demand from owner occupiers and investors alike.
WA’s strong COVID recovery has had a flow on effect for a variety of industries, particularly those servicing the resources sector which has created strong competition between owner occupiers. At the end of 2021, there was approximately 690,000sqm of vacant industrial stock across the total Perth market in all size ranges. In the corresponding 2020 period, there was over 1,100,000sqm of stock vacant. This rapid absorption of stock is the highest recorded in the past 5 years.
The leasing market experienced a resurgence in 2021 after many years of subdued activity. Rents have risen appreciably across the last 12 months, with core areas such as Welshpool, Kewdale and Canning Vale currently achieving face rents of $105/sqm-$115/sqm, and modern purposed built facilities achieving in excess of $120/sqm. The growth in rents reflects increasing tenant demand and limited supply of both built form product or land for design and construct or speculatively built developments. Accordingly, leasing incentives have continued to decline in the later part of 2021, with incentives reflecting between 0%-8%, which we expect to continue to recede with improving market conditions.
The demand for leased investments remains extremely buoyant, with several recent sales by MLV Real Estate reflecting yields in the order of 5.5%, which are historically unprecedented in the context of the Perth Industrial market.
Yields have compressed across all stock with prime yields having contracted to 5.00%-5.75%, reflecting approximately a 50bps compression year to date. Demand has been driven the low cost of borrowing and more favourable yielding investments compared to the Eastern seaboard. Secondary stock yields have also firmed across the last 12 months, in the order of 6.00%-6.75%.
The opening of WA boarders is expected to bring more certainty to businesses who have struggled with skills and materials shortages during the boarder closure, which is considered to further contribute to the buoyant market conditions that have arisen across the Perth’s industrial market in the last 12 months.
“..unprecedented levels of demand from owner occupiers and investors alike.”