Experts discuss Western Australia’s industrial property market

Ray White head of research Vanessa Rader hosted the webinar, and was joined by RWC WA joint managing director Chris Matthews, and sales and leasing executive Tom Jones.

“There is a fair bit happening in the market at the moment, transaction volumes are down, but we feel that it’s more to do with supply than demand,” Mr Matthews said.

“Demand is still off the charts high, there’s plenty of people looking, investors and occupiers. If the supply was there on the market then we do believe those volumes would be much higher.

“There’s lots of tenants looking as well with a really low amount of vacancy.”

Mr Jones said enquiry was coming from all size ranges and locations.

“The sub-500sqm space represents around 50 per cent of the availability, and the enquiry level is still very strong for that category.

“When you go to the 2000sqm buildings, there is a lot less supply but there’s also a lot less tenants looking for it, but there’s still a major bidding war going on.”

Mr Matthews said owner occupiers were very active in the market.

“Owner occupiers are outstripping the investors by far,” he said.

“If you’ve got a property coming to market vacant, an occupier will usually wait 6-12 months before wanting to move in. We’re finding if there’s 2-3 years running on a lease and there’s no options, you’ll still get owner occupiers coming in and paying well beyond what an investor will pay.

“Our advice for sellers is you’re better off selling it vacant because that’s where your premiums will come from. Even though rents are quite high, when you add a 6-7 per cent yield to that, you’ll find the vacant possession price is a lot higher by 10-20%. You just need one keen occupier who is ready to come in and pay the number.”

He said there were a lot of mining services taking up owner occupier space, with a lot of sub-200sqm space being bought for use as “man caves” to store caravans and boats.

Mr Matthews said the investor space was also still active.

“What’s often happening is, whenever we advertise a property we’re getting more enquiry from investors but the owner occupiers are willing to pay the higher price,” he said.

Mr Jones said interstate investors were showing keen interest in Western Australia’s industrial market.

“In the sub-$1 million space investors are coming from interstate, mostly the Melbourne and Sydney markets where they’re probably used to a lot tighter yields than what we get over here,” he said.

“The local investors are often missing out unfortunately because they’re still looking for those 7+ per cent returns. The NSW and Melbourne markets are used to sub-6 per cent.”

With vacancy rates still very tight, Ms Rader asked where Mr Matthews and Mr Jones saw rents heading moving forward.

Mr Matthews said it was hard to predict.

“Personally I’ve found there are transactions at $180+ per square metre for warehouse space which is crazy considering a lot of suburban office space will lease at that rate or less,” he said.

“Fundamentally, it’s supply and demand, and supply is so tight which is what is going to drive the price. The issue is we’ve got no supply coming on to taper off those premium rental figures that are being paid.

“It’s also cyclical. I was around in 2008-2012 period and saw once the GFC hit and we saw rents spike and values spike. If you look at that same sort of cycle, the only thing that changed was Covid cash came in and other things the government did to make sure the country didn’t go into recession during that period.”

With scarce availability of land and high construction costs, Ms Rader asked Mr Matthews what the outlook was for the supply of new stock.

“Supply isn’t going to come until land becomes available, and even once it does you have the infrastructure problem. Western Power taking up to 15 months to get a new service connection,” Mr Matthews said.

“Having land rezoned, then potentially subdivided, power, building, occupied, it’s a long process.

“Even if you started something today it might be 18 months before you have it ready to move in to.

“If demand does taper off a little bit and supply does pick up, we could be in that transitional period. It will be interesting to see where the market is in 24 months time.”