What you need to look out for in the industrial property market for 2021

While 2020 was a year that none of us will forget anytime soon, the clock has now ticked over into 2021 and we are all excited for the new year ahead.

In 2020 the industrial property market prevailed through tough times and came out on top. The events of the year were ultimately beneficial to the industrial property sector, with e-commerce becoming more important than ever. Vacancy levels were extremely low, with strong leasing activity in prime assets driving vacancy levels down. Particularly in Melbourne, the industrial property market hit huge highs as e-commerce created record leasing demands. It was even noted that in the midst of the second wave of Melbourne lockdown restrictions that capital value of prime industrial property rose 6%, between the first and third quarter of 2020.

So, what is expected of the industrial property market throughout 2021?

What is expected to hit and miss this year?

For the commercial and industrial property markets in general we are expected to see a range of hits and misses this year.

2021 Hits

  • Industrial sector and industrial land.
  • Lifestyle region commercial spaces.
  • Suburban retail and suburban office spaces.
  • Brisbane, Adelaide, and Canberra to see huge performance due to strong yields and low vacancy rates.

2021 Misses

  • CBD Office Spaces – especially in Sydney and Melbourne.
  • CBD Retail.
  • International Hotels.

How the current trends are going to carry into 2021

Looking forward in the industrial retail sector, the first expectation of the year is that the increased volume of e-commerce activity will result in record industrial leasing demand for 2021. It is likely that the record year of leasing demand in 2020 will be seen across industrial property markets again this year, underpinned by the continued growth of e-commerce, which is driving up demand for warehouse space.

Supply chains will continue to evolve as needed for the changing demand and the need for fast local delivery of packages, will aid an increase in demand and growth for industrial facilities throughout 2021.

Investors look to re-weight and adapt their portfolios towards industrial sectors

Secondly, it is expected that investors will be focusing their energy more heavily on industrial investments, rather than retail or office spaces in 2021. In 2020 investors who were considering adapting their portfolios to favour industrial investments delayed purchases until there was some clarity on the timeline and stability of border restrictions. So now that 2021 is showing much more stability on this front, it is time for them to invest. A focus on income security and low residential yields, will push investors to look into the industrial sector for more ‘guaranteed’ returns this year. It is also likely that overseas buyers will increase their share of purchases as well. With huge pressure for industrial land availability, which will increase yields and growth, there will become a further need for multi-storey warehousing and industrial floor space.

Cities aren’t at the forefront anymore, and suburbs are the new hotspots

The pandemic seemingly threatened to upend the status quo of city-centricity. While this isn’t expected to completely obliterate industrial spaces within city hubs, the lack of industrial real-estate available within hubs will push industrial property out further into regional and suburban areas. The huge pressure for industrial land availability will move demand towards regional and suburban industrial facilities, and away from city centres. Increased infrastructure investment and dwindling land availability will mean that industrial land value in Melbourne’s sub region is anticipated to reach an all-time high during 2021.

While we cannot predict everything to come during 2021, it looks as though industrial property will continue to hold strong throughout the year. What do you think will happen within the industrial property sector this year?