Rents fail to mirror growing demand for land

INDUSTRIAL rents, which have remained stagnant for the past decade, are showing no sign of improvement in the short to medium term despite promising activity in the industrial property sector.

Figures from the Real Estate Institute of WA for the June quarter show sales of industrial property accounted for 32 per cent of all commercial property sales, up six per cent on the previous quarter.

And while property experts are optimistic about industrial sales, they do not hold the same outlook for rental growth

“Rents have not moved in the last 10 years … talking in real terms you could probably say they have decreased,” Chesterton International industrial director Wayne Chorley said.

“It is a real lessees’ market at the moment.”

Mr Chorley pointed to the Western Australian economy, which relied heavily on the resources and mining sector, as one of the major factors in rents remaining low.

“The engineering business in WA, indeed Australia-wide, is at its lowest point ever … a lot of engineering workshops are now available because their tenants shut-up shop or closed their Perth operations to concentrate on those

in the eastern states,” he said.

“There are a lot of vacancies and the vacancy rate has not seemed to decrease significantly over the past five years.

“There has been movement but there are very few new players to take up the space.”

And until this space was occupied and new buildings under way, rents would remain flat, Mr Chorley said.

Knight Frank commercial and industrial director Martin Reeson agreed, saying for industrial rental rates to grow, the mining and resources sector needed to be running well.

And even with major resource projects coming on line, such as the North-West Shelf project, it would be some time before the economic benefits flowed through and affected industrial rents.

Mr Reeson said an evolved construction industry also was contributing to stagnant rents.

“Builders are now incredibly efficient and they use new techniques that allow them to build high quality premises at a lower

cost and more quickly,” he said.

“Because these costs have been contained, (building owners) are not seeking high rents.”

According to Knight Frank figures, warehouse rents in the premier industrial suburb of Canning Vale were between $50 and $60 per square metre, while Kewdale was between $50 and $65 per sqm and Welshpool was from $45 to $60 per sqm.

In the northern suburbs, Malaga warehouse rents are slightly lower at $42 to $55 a sqm.

Colliers Jardine research manager David Cresp suggested rents could improve in the next two to three years.

The industrial market, which was a little flat at the moment, had started to show more signs of activity, leading to the possibility that land values could rise again and have a flow-on effect on rents, he said.

“I think we will start to see a little more growth in rents in that time. Land values will grow and flow through to the rents,” Mr Cresp said.

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