The west is Melbourne’s popular best, but it’s running out of land

MELBOURNE, 7 OCTOBER, 2019 – The western suburbs have been Melbourne’s most active industrial precinct for the past decade. Large, well-priced sites with easy access to ports, road and rail ensure this area’s increasing appeal to logistics, light manufacturing and food distribution.

But unless service provision can keep up with development, the west could have just 4.5 years’ worth of suitable industrial land remaining, JLL’s latest research has found.

Melbourne’s Industrial West: Dispelling the industrial land supply myth says the precinct has Melbourne’s largest volume of land earmarked for future industrial rezoning (1034 ha), mainly in Truganina and Ravenhall.

But while some future sites are scheduled to be serviced by City West Water by 2026, much of the land won’t be connected for at least 15 years. Residential development, nature conservation zones and the Melbourne Urban Growth Boundary will also limit land supply for industry.         

JLL’s researchers analysed all currently vacant sites and found that 1198 ha remained as of June 2019. Just 450 ha was available for institutional-grade stock, which usually requires a minimum of 4 ha.

Couple this with a high take-up of land – more than 80 ha annually between 2014 and 2019 – and the west will run out of serviced, institutional-grade sites in 5.6 years (at 80 ha take-up a year) or 4.5 years (100 ha a year).

The west is still significantly cheaper than Melbourne’s south-east industrial precinct. However, land values are rising in established areas such as Altona (up 28% over the past year) and Laverton North (up 36%). Prices for one-hectare lots across the precinct are now 132% higher than in 2014.

With the new Westgate Tunnel due for completion in 2022, the western precinct is likely to grow in popularity.

JLL’s Head of Industrial – Victoria, Matt Ellis, said: “Melbourne’s population is growing strongly and its economic and population centre is moving west. Infrastructure Australia, in its latest Future Cities Report, estimates the west will add about 900,000 people to 2046.

“Current and evolving infrastructure projects, such as the Westgate Tunnel and improved regional rail links, bode well for the western suburbs,” Mr Ellis says.

“However, as conflict created by competing demands for well-located land escalates, Melbourne’s policy-makers need to consider the benefit of retaining some industry near high-population precincts. This allows for efficient last-mile delivery, which is critical to industry, especially the growing e-commerce sector.

“Melbourne’s city fringe was once an important industrial hub. Gentrification and residential development have priced industry out, and the focus is now on the western precinct.”

Senior Research Director – Annabel McFarlane added “investors can expect solid growth in western precinct rents. In 2008, average rent per sqm was $69, rising to $79 per sqm in 2018, an annual increase of 1.5%. In 2018-19, however, rents rose by 4.8%. Increasing pressures on land supply in the West will result in upward pressure on economic rents as developers factor in increased land costs. Tenants are likely to refocus on existing space options in quality locations. Rents are increasing in both prime and secondary assets in some locations. However, secondary assets in Altona and Laverton have had the greatest increase in face rental growth increasing by more than 15% y-y as at 3Q19.”