Sydney's industrial property market is surging ahead of Melbourne with more active retail, residential and infrastructure sectors driving development and uptake.
Melbourne's speculative building market has ground to a halt as developers take a breather and wait for already completed space to be taken up by tenants.
Research from Knight Frank shows there are currently no speculatively built industrial buildings under way in Melbourne, while developers in Sydney are working on 56,210 square metres of space.
Knight Frank head of research Matt Whitby said "Melbourne developers are taking a pause to digest the market and see how absorption goes.The Victorian market is plateauing, it's certainly not going backwards but tenant demand is weaker than in Sydney.
"There's no doubt the Victorian economy is doing well but Sydney is doing better – its housing market is stronger, retail is stronger and there's lots of road infrastructure under construction," he said.
"Demand from these sectors is stronger and vacancy is so much lower. In 12-18 months that 56,000 square metres will blow out to over 100,000 square metres. And there aren't enough big options so the pre-commitment market will pick up too," he said.
"Spec building is a sign of how well the market is going – are developers confident or not confident?" he said.
Industrial vacancies down the east coast fell by 2.8 per cent to 2.16 million square metres, half of which is in Melbourne.
The Melbourne market has reduced slightly – 1.3 per cent – since the April high of 1.06 million but vacancy remains 12 per cent above the same time last year and 60 per cent above the long-term average, he said.
Sydney's vacancy levels are dramatically lower at 477,636 square metres – an increase of 3.7 per cent in the past quarter as spec building ramped up but 17 per cent lower than last year.
The absorption of 223,119 square metres of industrial stock in the past quarter was 54 per cent above the long-time average and the eighth consecutive quarter of above average take-up, resulting in a 41 per cent decline in vacancy since its January 2015 peak.
Most of the interest is in prime stock as businesses move out of secondary buildings and into new ones. In Sydney, prime stock makes up 70 per cent of the available industrial space, while in Melbourne only 52 per cent is prime.
CBRE industrial and logistics director Dean Hunt said leasing deals had doubled in the quarter to 166,000 square metres but there would be a reduction in new Melbourne floor space in 2016 as the volume of spec building reduced.
Research from agents CBRE indicate that Melbourne yields remained static in the last quarter even as $500 million of industrial property sold, including 810-848 Kororoit Creek Road, in Altona North, which fetched $40 million and the Alex Fraser portfolio for around $44 million.
