Newcastle’s industrial market sees surge in demand
The Newcastle and Hunter Region’s industrial property market has continued to attract swelling demand driven mostly by strong local economic activity as well as burgeoning demand from owner-occupiers, developers and investors.
Colliers’ latest Research and Forecast report for the March 2021 quarter highlighted an increasing wave of demand for industrial property in the Hunter region, where net absorption in the past 12 months to Q1 2021 has exceeded 140,000 sq m.
Overall, the region’s industrial vacancy rate declined from 4.64 per cent in Q1 2020 to 3.70 per cent in Q1 2021, with average gross incentives now at just 5 per cent for prime stock and 10 per cent for secondary stock.
The report also revealed that the leasing market has continued to tighten, with as many as eight industrial suburbs recording vacancy rates below 2 per cent, resulting in more tenants struggling to secure premises in prime locations.
With low levels of supply, average net face rents for prime stock have now increased to between $120 and$140/sq m from last year’s $118, while secondary stock is typically leased for between $90 to $120/sq m.
Industrial land
The region’s industrial land market has also witnessed growth as the available supply for ready-to-develop land continues to decline, according to Colliers.
“Future land supply is proposed for Blackhill, Kurri Kurri and Tomago. However, until those projects are delivered, existing industrial sites will continue to be in high demand from owner-occupiers and developers,” it added.
The report noted an increase in enquiries for industrial opportunities within the Hunter region as both domestic and international investors look to take advantage of lower land values and higher yields compared with metropolitan markets.
As of March 2021, the average capital value of prime stock within the region sits at $1,800 to $2,400, while secondary stock is valued at $1,200 to $1,800.
“This has put further pressure on investment yields, with prime yields tightening on average by 100 basis points in the last 12 months.”
Prime yields currently range from 5.5 to 6.5 per cent, while secondary yields range from 6.5 to 7.5 per cent.
Looking ahead, Hunter Region’s industrial market is expected to continue to grow on the back of “strong fundamentals, [which] are anticipated to continue into Q2 2021 and the remainder of the year”, Colliers concluded.
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