Land values have soared 60 per cent in Fishermans Bend since the suburb's rezoning, a shift that has prompted a rush to short-term leases, agents Knight Frank say.
The state government last July rezoned 240 hectares of commercial and industrial land just south of Melbourne's CBD into four mini-suburbs to accommodate 50,000 residents. Since then, many key sites have changed hands.
Recent sales include 18-22 Salmon Street, which sold for $12.1 million, and 704-740 Lorimer Street, which fetched the second highest price for an industrial property this year, $26.3 million.
In the Montague precinct alone, plans have firmed for 17 residential towers on former industrial sites.
Knight Frank industrial director Gab Pascuzzi said land values in Montague had increased on average in the past year from $2500 to $4000 per square metre.
A total of $86.2 million worth of industrial property had changed hands in Port Melbourne since the urban renewal announcement.
The sales of industrial properties in Port Melbourne worth more than $10 million accounted for 20 per cent of metropolitan Melbourne's industrial transactions this year despite the suburb having only 2 per cent of the city's industrial zoned land, he said.
Lemon Baxter director Paul O'Sullivan said significant factors were holding back activity even though prices had surged.
Developers were wary about the uncertainty over height restrictions and the requirement for "up-front" infrastructure contributions, he said said. "Until those issues are resolved, its going to be very difficult for developers to transact on sites."
Knight Frank director Ben Hackworthy said rezoning had created a trend towards landlords offering shorter leases with an added caveat of a development clause. Property owners were unwilling to lock tenants in on a standard, long-term 10-year lease, Mr Hackworthy said.
Instead they were offering more incentives, particularly around fitouts, to retain and attract tenants.
Industrial space available in Port Melbourne will shrink by about 36 per cent over the next 10 years, Knight Frank estimates. A similar contraction of industrial space in other inner-city suburbs such as West Melbourne, Collingwood and Richmond would intensify competition in Port Melbourne.
"Increasingly, industrial space is being occupied by "non-traditional" industrial users such as gymnasium operators, residential storage and showrooms for online retailers," Mr Hackworthy said.
The potential area of Fishermans Bend available for redevelopment dwarfs Melbourne's most recent urban renewal project, Docklands' 200 hectares, and Sydney's 22-hectare Barangaroo project.