Speculative development has driven a 2.5 per cent rise in Melbourne's industrial vacancy rate in the past six months, a report by consultants Urbis says.
Developers have responded to demand with a rush of speculative space which, coupled with large transport business failures, pushed up the industrial vacancy rate to 5.5 per cent, Urbis' August Melbourne Industrial Vacancy report found.
"The impact of this level of vacancy is likely to be a slowing of speculative supply in the short term," Urbis valuations and advisory director Shane Robb said. "But, if you benchmark industrial against the CBD office vacancy of 9.8 per cent, it's hardly panic stations."
Investor appetite was still strong at the prime end, particularly from overseas, and from local super funds and the real estate investment trusts sector, which will push true prime asset capitalisation rates below 8 per cent towards 7.5 per cent.
Occupier demand was softer for secondary stock, Mr Robb said.
"There are deals being done, but a lot of demand is going towards purpose-built facilities," he said.
Savills Australia divisional director Graham Hemingway said strong appetite for assets of $4 million to $20 million from investors and syndicates was being driven by low interest rates and higher yields. "The bigger the assets, the more competition there is. They're certainly far more aggressive. We're seeing yields getting close to the 7 per cent mark."
Mr Hemingway's most recent deal was the sale of a 2.46-hectare property in Vella Drive, Sunshine, to Fife Capital for $6.18 million.
The industrial market was characterised by "unsatisfied capital", Jones Lang LaSalle said recently, with a shortage of prime investment opportunities.
The relatively flat short-term economic outlook and large corporations' "considerable" supply chain and warehouse efficiencies will keep building levels well below longer-term trends, Urbis maintains. Warehouses are more efficient thanks to increased height, better rack configuration and stock control and a more efficient supply chain, it said. The report found:
■ Total vacancy increased from about 390,000 square metres to 730,000 sq m.
■ Melbourne's north had the highest vacancy rate, 8.7 per cent.
■ Vacancy in the west increased most, up from 2.3 to 6.8 per cent.
■ The south-east, Melbourne's largest industrial market, saw only a slight vacancy increase from 3.8 to 4.5 per cent.
■ The inner-city vacancy rate remains at 0 per cent but some large leases will expire next year, threatening its perfect record.
Urbis tracks only vacancies in buildings larger than 10,000 sq m.