Melbourne has overtaken Sydney as the centre of industrial leasing, with the supply pipeline in the country’s largest city shrinking and tenants backing out amidst economic doubts, according to new research from JLL.
Melbourne had 49% of the 598,000 square metres of industrial space leased nationally during the June quarter, while Sydney had 23% and Brisbane had 20%, the research showed.
The gross take-up across the country’s five capitals is expected to meet the 2018 achievement of 2.5m square metres—well above the 10-year average of 2.1m square metres, according to the research.
New developments are low in Sydney, with a predicted 37% fall in 2019, the data showed.
The leasing in Harbour City had been “very quiet” even after the federal election, as users of industrial space pondered global uncertainties, according to JLL research director Sass J-Baleh.
“We have seen a lot more activity in Melbourne purely because there’s been a lot more development in the pipeline because there’s more land relative to Sydney,” J-Baleh said.
Melbourne’s cheaper rents are likely to influence tenants who could locate in either city. However, the occupancy costs typically account for less than 20% of a logistics company’s total expenses, she said.
Sydney developments—approved or under constructions—will suffer a 37% decline in 2019, according to JLL’s forecast.
In Melbourne, approved or under-construction developments fell 20% in 2018, but approved or under-construction projects are now at 400,000 square metres. This is just under the 10-year average of 474,200 square metres, according to the research.
“However, we expect the development pipeline in 2020 will increase again, unlike the Sydney pipeline over the next two years,” J-Baleh said.
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