Weak signs for industrial property in Melbourne

UNDERLYING demand for industrial property in Melbourne is set to weaken over the next 12 months in line with the Victorian economy, according to the forecaster BIS Shrapnel.

UNDERLYING demand for industrial property in Melbourne is set to weaken over the next 12 months in line with the Victorian economy, according to the forecaster BIS Shrapnel.

In contrast, the outlook for Brisbane's industrial market is more positive, although demand remains narrowly focused, says BIS Shrapnel's latest report, Melbourne and Brisbane Industrial Property Market Forecasts and Strategies 2012 to 2022.

Despite the poorer forecast for Melbourne, speculative building is still going ahead, particularly in the industrial west, an analysis by Savills Australia has found.

BIS Shrapnel's senior project manager, Lee Walker, the report's author, said two out of three key drivers of demand would decline over 2012-13 in Melbourne. Business stocks, the big driver of warehouse demand, would be hit by a downturn in construction, joining declining public-sector investment and slowing private consumption.

Second, the high Australian dollar would continue to undermine the competitiveness of Victoria's tradeables sector, and stymie manufacturing output and depress demand for factory space.

However, some demand for new and more efficient premises would come from tenants wanting to upgrade. "Upgrader demand is likely to place a floor under leasing demand, particularly driven by retailers and logistic providers, but does not necessarily add to net demand for industrial property," he said.

Mr Walker said the saving grace for Melbourne was constrained supply with construction activity still 40 per cent below the previous peak and little improvement expected in the short term. This should keep vacancies (in premises above 5000 square metres) fairly well contained. "However, there will be limited pressure on rents to rise because of the weakness of demand," he said.

Overall, Mr Walker said the Melbourne industrial market would muddle through the next 12 months before an upswing from 2013-14.

In Brisbane, BIS Shrapnel said, the booming resources sector was leading strong demand for industrial space. However, companies not benefiting from the mining industry were struggling with turnover growth and low confidence, and were concentrating on cutting costs.

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