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Industrial properties to see fastest rent rises

Adam Zuchetti
Adam Zuchetti
25 March 2019 1 minute readShare
Knight Frank for lease

Among the various types of commercial property, industrial premises are set to see the steepest climb in rents in 2019, but offices will also become more expensive, according to a global real estate group.

Releasing its annual predictions in its Australian Capital View 2019 report, Knight Frank said that owners of industrial properties are set to see the biggest returns this year, with total returns for the year forecast to be 13.4 per cent.

Double-digit returns are also expected for the owners of offices, at 11.4 per cent.

“Despite slower economic growth in the second half of 2018, the outlook for commercial property remains robust, underpinned by sustained tenant demand,” said Ben Burston, the head of research and consultancy at Knight Frank Australia.

“As the year progresses, we expect the market to undergo a transition from yield compression to rental growth as the primary driver of performance, and this shift will see the office and industrial sectors deliver another year of strong returns due to ongoing supply shortages.”

Industrial rents surge over past year

According to Knight Frank’s head of industrial in Australia, Robert Salerno, industrial rental growth was led by surges in Australia’s two largest cities, with prices increasing by 4.3 per cent in Sydney and 4.1 per cent in Melbourne over the year to January 2019.

Much slower rates of growth were recorded in other cities, such as Brisbane and Perth (up by 2.5 per cent and 1.7 per cent, respectively).

“This has, and will continue to, contribute to greater speculative development as developers look to maximise rental returns,” he said.

Sydney, Melbourne office rents keep climbing

Similarly, Sydney and Melbourne are also set to see the fastest pace of growth in office rents, with the firm anticipating “net face rental growth” over the next five years of 23 per cent and 20 per cent, respectively.

“Among the office markets, we expect the fastest growth in Melbourne this year, but over a five-year view, Sydney’s very limited speculative development pipeline is expected to result in the fastest growth nationally,” Mr Burston said.

The report comes amid evidence that owners of commercial properties are forgoing selling in order to capitalise on the growth in demand and rents, with fellow commercial real estate giant CB Richard Ellis (CBRE) stating in January that the volume of commercial property transactions fell by almost 10 per cent in 2018.

However, CBRE did note that at least part of this slump in transactions was due to a lower volume of investment from overseas buyers.

Industrial properties to see fastest rent rises
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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