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Macro drivers to remain favourable in 2021

With the exception of population growth which will take a hit in the short term as a result of international border closures, the other macro drivers of e-commerce, infrastructure investment and automation adoption are expected to remain strong.

E-commerce has been the big benefactor over the past 12 months. While the rate of growth is expected to ease throughout 2021 from the heights recorded in 2020, it will remain elevated by historical standards and will drive major pre-commitments in most markets. With online retail sales requiring three times the amount of warehouse space when compared to traditional brick-and-mortar sales, further growth will buoy demand levels as retailers invest in their online store platforms.

Industrial take-up

Occupier demand for warehouse space was significant in 2020 and the strong momentum has continued into 2021, buoyed by the strong macro tailwinds which are supporting demand. In 2020, just over 3.2 million sqm was leased nationally (>5,000 sqm), up 38% on the 10-year average and was dominated by Retail Trade and Transport and Logistics sectors.

Elevated leasing activity has been sustained in Q1 2021 with approximately 1,000,000 sqm of gross take-up recorded, representing a third of the activity recorded in 2020. Take-up activity remains heavily weighted to the Sydney and Melbourne markets.

Looking ahead, a record year of take-up is expected in 2021 and will be supported by a pick-up in Brisbane, Adelaide and Perth markets after a subdued 2020.

Chart 2

Industrial supply

Industrial completions totalled approximately 2.4 million sqm in 2020 which represented the largest annual supply since 2007. Melbourne accounted for 38% of new supply to enter the market in 2020 with just over 900,000 sqm completing.

Looking ahead, supply levels are expected to remain elevated in 2021, totalling 2.1 million sqm for the year. Supply will remain dominated by Melbourne while a pick-up in both Sydney and Brisbane is also expected. Alternatively, fewer additions are expected in the Adelaide and Perth markets. The impacts of high levels of supply are expected to be minor with 70% of new supply forecast in 2021 being pre-committed.

Chart 3

Industrial yields

Industrial and logistics yields have shifted significantly in Q1 2021 with upwards of 50 basis points of compression being recorded within some submarkets over the quarter. While this is significant, further compression is expected over the next six months as a number of assets in the market or in due diligence re-rate industrial and logistics pricing.

Prime core assets in Sydney and Melbourne are currently trading below 4.0% in some instances while there are select cases in Brisbane where yields around the 4.0% are being struck.

Chart 4

Research & Forecast Report H1 2021


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