Industrial Land Shortage Sees Prices Surge

Industrial land

Industrial land prices have surged on the back of a shortage of development-ready properties in Sydney and Melbourne, the former recording a remarkable 35 per cent rise over the past 12 months.

Figures from CBRE reveal that over the year to March, Sydney industrial land values hit almost $750 per square metre, up from around $550 per sqm, for 1.6-hectare serviced blocks.

Melbourne also recorded a rise in land values for serviced blocks, albeit to a lesser degree, to just under $400 per sqm.

The rises in these two markets meant that nationally industrial land values were up 18 per cent for the year.

CBRE said the strong rise in Sydney land values "reflected continued demand for development sites".

The rise in land values comes as the likes of Amazon, Chinese ecommerce giant Alibaba and French sporting goods group Decathlon search for new warehouse space in Sydney and Melbourne.

The land figures were included as part of CBRE's March quarter update on the industrial property market. The commercial real estate group said the sector was showing continued signs of growth, led by Sydney and Melbourne, despite the slowdown in residential construction, a key driver for industrial demand.

Over the quarter, prime industrial yields tightened by a further 10 basis points to 6.8 per cent with Sydney yields down 35 basis points over the past year to 6 per cent and Melbourne yields down 42 basis points to 5.9 per cent.

Prime rental growth has been subdued over the past year with only Sydney (up 4.7 per cent to $130 a square metre) and Adelaide (up 6.7 per cent to $90 a square metre) recording meaningful lifts. Rental growth was flat in Melbourne and Brisbane and fell 7.5 per cent in Perth.

Just 325,000 sqm of new supply was added to the industrial market in the first quarter of the year, 25 per cent less than the December quarter, with the bulk of this in Sydney.