There is now some evidence to show that the Brisbane industrial market is beginning to recover, and it should continue to improve over the coming years. The occupier market has been through a subdued period over the past few years. Face rents peaked in the middle of 2013, when the Queensland economy was booming on the back of a significant mining investment boom. Since then, rents have steadily declined while incentives have risen, thanks to relatively soft leasing conditions. However, momentum appears to be building for the sector.

The strongest evidence of this recovery is the growth in industrial land prices. Over the past 12 months, land values of a typical 1-hectare site have increased by an average of 20% in the Trade Coast and Southern precincts, with some recent sales suggesting even higher growth. The increased appetite for industrial land has been driven by a combination of owner-occupiers and developers, a trend that confirms the increased confidence in the market. While rents are yet to significantly increase in the Brisbane market, rising land prices have been a leading indicator of rental growth in the past. In Sydney, industrial land values fell following the 2008 Global Financial Crisis and only began to rise significantly at the end of 2013. Positive rental growth in that market was delayed by about 18 months after land prices began to rise. In the context of the Brisbane market, land values began to rise in 4Q16. If Brisbane was to follow a similar recovery to Sydney, rents should begin to rise in the near future, with some early evidence in 1Q18.

Figure 1: Land Price and Rental Growth– Brisbane South vs Sydney Outer Central West
Source: JLL Research
*Data begins from quarter prior to land price growth in each market.
Sydney base year is 4Q13 while Brisbane is 4Q16.

There are a number of other positive economic fundamentals that should benefit the Brisbane industrial sector. A significant amount of infrastructure investment and major project construction is beginning from 2018. Early works have begun on the Cross River Rail ($5.4 billion) and Queen’s Wharf ($3.0 billion), with a number of other projects in the pipeline in South East Queensland. Population growth has risen, which has historically been correlated with higher industrial take-up. In addition, the Federal Government recently announced that the German manufacturer Rheinmetall, had been awarded the $5 billion defence contract to build armoured vehicles in Brisbane. The company also confirmed that it will bid for the next phase of armoured vehicle manufacturing, which will be worth approximately $15 billion.

Finally, the expansion of e-commerce will continue to underpin demand in Brisbane’s industrial sector. Australia still has relatively low penetration of e-retailing, with just 7.5% of total retail trade occurring online, compared with 10.5% in the United States. According to the Australian Bureau of Statistics, online retailing has grown by an average of about 20% per annum over the past 2 years. The growth potential for this sector will likely drive further demand (particularly from new entrants) for industrial space in Brisbane, from retailers directly and third party logistics providers.

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