Developers Look for Sites as Confidence Grows

600,000sq m of land worth $200 million sold in South East in last 12 months

A healthy rise in industrial leasing and growing confidence in the Victorian economy is driving a new round of speculative development and demand for construction ready sites across Melbourne’s key industrial zones.

According to Savills Victorian research manager, Monica Mondkar, more than 145,000 square metres of speculative 5,000 square metre plus, industrial development is underway across Melbourne’s Industrial markets, while another 400,000 plus square metres is in the planning stages and likely to be driven by pre-commitment activity.

Ms Mondkar said the figures were a modest estimate based on planning applications for industrial development including warehouses, distribution centres and cold storage facilities. She said the figures did not include the conceivably greater number of projects under 5,000 square metres.

The figures include 27,000 square metres of speculative construction scheduled for completion within next 12 months in Melbourne’s western region, 58,485 square metres in the northern region and more than 60,000 square metres in the south-east.

Ms Mondkar said an additional of 93,715 square metres of warehousing space was currently in early planning stages in the north, and another 318,973 square metres - all at Melbourne Airport Business Park precinct - in the north. However the majority was expected to commence construction based on pre-commitment activity.

Savills Industrial Director, Michael Green and Senior Executive, Paul Jones, said the demand and the relative scarcity of development sites was putting upwards pressure on values for smaller allotments with prices on some estates in the north and south-east at $300 plus per square metre.

Mr Green said demand for lots in the northern region had left only eight lots available at McMullin Group’s Northpoint Enterprise Park. He said Genesis Developments had sold out a speculative 11 unit development and was now in the process of building another high-end speculative 20 unit development next door on the back of those sales, while at MAB’s Alliance Business Park nearby, six lots were sold or under offer in the last stage of that development.

In the south-east, a private Melbourne based developer has purchased the last three vacant parcels of industrial land totaling 7,000 square metres at Hallam Central Business Park for just over $2 million with plans for speculative development, while in the west 13 development sites totaling 12.8 hectares at Goodman’s Westside Industrial Estate, also earmarked for speculative development, sold for more than $20 million over just four weeks in January and February.

Mr Jones, who brokered the Hallam deals, said more than 600,000 square metres of serviced industrial land valued in excess of $200 million was sold over the last 12 months in the south-east, the majority adjoining EastLink in the Dandenong Logis Estate and The Key Industrial Park.

He said the strong enquiry for development sites in 2016 followed a significant rise in leasing transactions and pre-commitments over the previous 12 months driven by Victoria’s nation leading population growth with some positive news on Victoria’s economic fortunes adding to a growing confidence in the industrial market generally.

“There are only eight serviced lots currently on the market in Dandenong/Keysborough and that is a reflection of a much more positive sentiment in the market with further proof in the speculative construction which will follow.

“Leasing is up over last year and up considerably over the long term average and perhaps the most significant part of that rise has been in pre-commitments,” he said.

Ms Mondkar said 871,836 square metres of industrial space was reported leased in the 12 months to March in Victoria - up a healthy 36 percent on the five year average figure of 641,328 square metres – with pre-commitments accounting for a significant 309,691 square metres.

Mr Jones said AstralPool, (21,500 square metres) and Dana Australia (10,000 square metres) were two firms who had pre-committed to new office/warehouse facilities, both at Frasers Property’s The Key Industrial Park in Keysborough.

In the latest pre-commitment deal, brokered by Mr Jones, an owner-occupier has paid BFD Constructions $1.6 million for a circa 1200 square metre office warehouse in Discovery Road, Dandenong.

Mr Jones said developers were now looking to ‘future-proof’ themselves by acquiring englobo sites in prime locations such as the recent acquisitions at 241 Perry Road, Keysborough (5.66 hectares sold for $5.69 million) and 275 Perry Road, Keysborough (6 hectares, price undisclosed).

Mr Green said the shortage of well-located construction-ready industrial sites in the north was increasingly becoming an issue as more developers sought opportunities for speculative development.

“There is a lot of speculative activity in the north, especially for sub 4,000 square metre sites, but development sites in the best locations are becoming increasingly hard to find with land in the key Epping market, and particularly the Cooper Street precinct, nearly all gone.

“There has been a real urgency from developers to get into this precinct and that demand will now feed into those nearby industrial estates that can offer the best access and facilities,” Mr Green said.

According to McMullin Group’s John Purdey, based on sales and settlement dates, late 2016 would see Stages 4 and 5 of Northpoint Enterprise Park explode into a hive of development activity.

“We’ve seen an unprecedented level of activity in and around Epping and that is not surprising given the opening of the Melbourne Wholesale Fruit and Vegetable Market which, along with the north’s superior road network, has attracted numerous other developments to the area,” Mr Purdy said.