A supply shortage has been the main factor affecting Perth’s industrial market in recent years.
While investors’ appetite for industrial assets is high, sales volumes have declined due to a lack of available stock.
This has led to increases in rental rates and property values and falls in rental vacancy rates and transaction volumes.
Recent research from RWC WA (formerly Ray White Commercial WA) shows that industrial transactions in Perth dropped from $3 billion in 2021 to $750 million last year.
It is worth noting that the $1.3 billion sale of Jandakot Airport to Dexus in 2021 resulted in a significant spike in that year’s data.
However, the 2024 data represents a reduction from 2023, when about $1.1 billion of industrial buildings sold in Perth, and 2022, when more than $1.8 billion in transactions took place.
There has been little activity in Perth’s industrial sales market this year so far, but several assets were in due diligence or under contract at the time of writing.
RWC WA joint managing director Chris Matthews said the low transaction volumes in industrial property was a reflection of the scarcity of available stock.
“If we doubled the stock on market, we wouldn’t have trouble selling it,” he said.
“There are still multiple competitive offers received in the vast majority of property we are selling.”
Owner-occupiers are emerging as dominant players in Perth’s industrial market, with several recent transactions selling to buildings’ former tenants.
Competition
Developers are regularly being outbid by owner-occupiers on industrial properties, and it’s a trend that is gathering steam.
Realside Ovest chief executive Julie Drago manages $380 million of industrial assets across Western Australia and South Australia.
Speaking to Business News, the newly-appointed Property Council of Australia WA Division president said it was difficult to compete with owner-occupiers.
“There’s no way we get to anywhere near the pricing that they’re paying because they’re looking at a different metric,” Ms Drago said.
“They’re looking at a longer-term view. We’ve got a long-term view as well, but they don’t have hurdle rates or anything like that. They’re just thinking to secure their future.”
Ms Drago added that the most Realside Ovest would pay for industrial land in this market was between $400 and $450 a square metre.
“If you go above that, it’s very hard to stack up a development because construction pricing has not come back,” she said.
“We’re paying all-time records for land, all-time records for construction.
“While we’ve had rapid growth in rent, you’re getting to the point where people can’t afford to pay any more.”
She said these factors combined to make it challenging for developers to buy industrial properties.
“At the moment, as a developer, it’s very challenging, because there’s not a lot of levers,” Ms Drago said.
“For me to buy land at $500 a square metre, even if you’re getting rent at $160 a square metre, it still doesn’t work. I don’t understand how people are doing it now.
“On the flip side of that, it’s the owner-occupiers who are really trying to shore up their future … they’re trying to avoid the issue that, in the next five to ten years, rents [will keep increasing] and make their business unviable. So they’re shoring up their own future.
“They don’t really care. They’re just saying, ‘it’s a security for me, so that I know that I’m not going to be exposed, and that my rent is not going to jump ten to fifteen per cent a year.’”
RWC WA figures show industrial rents in Perth have escalated sharply since 2020, from less than $90/sqm to about $130/sqm.
Perth’s northern industrial precinct leads the state with average rents of $132/sqm, a 1.5 per cent increase from the year prior.
The eastern corridor is recording average rents of $126/sqm, while industrial rents south of Perth average about $129/sqm.
Rents of more than $200/sqm for individual assets have been recorded east of Perth in what is considered the state’s prime industrial area.
Realside Ovest attracted a rent of $208/sqm for 7 Casella Place in Kewdale, which is leased to KEE Group.
Perth’s southern corridor recorded the highest rate of rental growth in the past five years, at more than 60 per cent.
RWC WA research shows that all of Perth’s major industrial areas recorded rental growth of close to 50 per cent since 2020.
The real estate group said the industrial market was transitioning from the exceptional growth phase of recent years to a more sustainable pattern.
“While tenant demand has moderated and enquiry levels have softened, historically low vacancy rates continue to underpin the market’s performance,” the RWC WA report read.
The report added that construction costs remain elevated, which is limiting new supply and effectively setting higher benchmark rents for new developments.
“This dynamic, combined with economic uncertainties, has driven more tenants towards property ownership as a hedge against riding occupancy costs,” the report said.
“While rental growth is expected to moderate due to slight increases in vacancy, the limited development pipeline and sustained high construction costs should help maintain rental levels above historical averages.”
The trend towards owner occupancy is reflected in the recent sale of 14 Jade Street in Maddington to Car Wreckers Perth.
The local business, which was leasing the property for several years, bought the 3,000sqm warehouse for $3 million.
A comparable, but 1,000sqm larger, property nearby at 2 Wildfire Road in Maddington sold for $2.75 million in June last year.
Mr Matthews said owner-occupiers were also buying properties with longer weighted average lease expiry (WALE) than in the past.
“Occupiers are buying assets with three years left on a lease,” he said.
“It used to be twelve months.”
At the time of writing, a 4.73ha Jandakot property was currently under contract to an owner-occupier.
Sterling Property senior partner Colm McHugh said the recent interest rate cut would trigger more demand for industrial property.
“We’ve already been operating in a supply-constrained environment, and now with the cost of capital coming down, we expect demand to intensify as businesses move to secure their own premises rather than face rising rents,” he said.
Mr McHugh described this year as a turning point for Perth’s industrial market.
“With strong fundamentals and a favourable lending environment, we’re expecting a wave of capital to flow back into commercial property, particularly industrial,” he said.
Eastern states
While industrial property is difficult to find in WA, property funds are targeting opportunities elsewhere. For Ms Drago and Realside Ovest, SA is seen as a strong market.
“We’ve been looking everywhere,” she said.
“We’re doing very well in Adelaide, so we’re looking there.
“We’re looking at Melbourne, which is probably counter-cyclical to a lot of other people.
“It’s really where we can see some value. We’d love to buy more stuff in WA. For us it’s more of a land play, and looking at where we think the future demand’s going to be.”
Ms Drago said she preferred the southern corridor, including Orion Industrial Park in Wattelup.
Westbridge Funds Management’s recent major purchases have been on the east coast, In February, the Subiaco-based fund manager purchased a manufacturing facility in Pinkeba, Queensland, for $30.51 million.
This was followed by its purchase of a large-format retail centre in Wagga Wagga, NSW, for $45 million. Westbridge’s most recent WA acquisition was a Kewdale industrial facility, which it bought for $12 million in mid-2024.
Chairman Damian Collins said while industrial was Westbridge’s preferred asset class, the right properties were difficult to come by in WA.
“We’ve been very bullish on industrial for a long time,” Mr Collins told Business News.
“It’s more than fifty per cent of our commercial portfolio and will continue to still be a core part of what we look for.
“There’s nothing really any good that’s come up in WA for a while.”
Westbridge currently has $360 million of industrial assets under management.
Ben Lisle’s Hesperia has kept its portfolio within WA, with assets in Canning Vale, Bayswater, High Wycombe, Rockingham and Hazelmere.
In November last year, the company purchased 6 Magnet Road in Canning Vale from Austwide Consumer Products for $35 million.
In June 2024, it bought 3 Casella Place in Kewdale for $38.5 million from Judeen Nominees.
Hepseria commercial director Brayden Kennedy said decreasing sales volumes in WA’s industrial market could be linked to uncertainty among investors in a high interest rate environment.
“On the capital transaction side, it’s probably just a level of uncertainty that was in the market in terms of, obviously, yields have gone up,” he said.
“The rate cut that happened [means] we are on the back end of that cycle.”
Hesperia bought 3-5 Casella Place for $38.5 million last year. Photo: Hesperia
Growth barriers
Delays with connection to utilities has been a thorn in the side of the state’s commercial property developers for the past few years.
Ms Drago has been vocal about issues between developers and Western Power, when it comes to connecting sites to the grid.
Under the current conditions, Ms Drago said, she could build an industrial building faster than it could be connected.
“Some of these projects are going to take eighteen months to build,” Ms Drago told Business News.
“But in that time you can’t get temporary power, so you’re building off-grid.
“There are still huge lead times with Western Power. It hasn’t got worse, but it’s not getting better.
“We’re making applications now for projects that we’re looking to develop in the next twelve months. They’re still telling us eighteen months [to connect power].
“It has not improved.”
At Realside Ovest’s 2.95ha property at 2 Venture Place in East Rockingham, the company spent $300,000 for solar panels it says still are not connected to the energy grid.
“We put solar on the roof two years ago [and] I still today do not have authority from Western Power to turn the system on,” Ms Drago said.
A Western Power spokesperson said the utility recognised the value of industrial-scale solar connecting to the network and had undertaken a review of its processes to improve connection timeframes.
“Western Power also continues to engage with industry around improvements to its commercial and industry development connection times,” the spokesperson said.
*Since this article has gone to print, Business News has learned that Western Power authorised the connection to the grid for Realside Ovest’s solar panels in East Rockingham.
