Sydney, 27 May 2013-Rising industrial production and job growth is driving increased tenancy demand in Australia’s industrial markets, new research from CBRE shows.
According to the 2013 Australia Industrial MarketView Q1 results, the level of supply and rental growth is close to surpassing the five-year average, with the east coast emerging as the nation’s industrial engine room.
This year, Sydney and Brisbane are tipped to see 878,000sqm of new industrial construction get underway in each market – outstripping the five-year average of 705,000sqm and 649,000sqm respectively. Nationally, some 2,066,000sqm of space is expected to be completed in 2013.
CBRE Senior Research Manager of Industrial Markets Luke Dixon said industrial activity was tracking in line with the structural economic shift away from manufacturing towards the transport and logistics sector.
In the year to December 2012, the warehouse and transport services grew 4.4%, while during the same period manufacturing output contracted 1.7%.
“The property markets are adapting to this shift, with developers building large scale, 10,000sqm-plus warehouses, in some cases speculatively, near transit and port hubs to capture long term distribution and transport tenants,” Mr Dixon said.
CBRE Regional Director, Industrial and Logistics Services, Joshua Charles said there were many appealing leasing opportunities on the market at present, creating an ideal environment for tenants.
“Over the past couple of years we have seen a certain amount of constraint in the industrial sector, which is now starting to ease as the economy strengthens and confidence returns,” Mr Charles said.
“There is a lot of movement in the market now, with demand particularly strong in Sydney, Brisbane and Melbourne.”
Nationally, A and B grade warehouses both experienced rental growth in the year to March, with rises of 2.4% and 2.5% respectively.
CBRE’s data also shows that Australian Real Estate Investment Trusts (A-REITs) are leaning more towards industrial assets – reinforcing the market’s growing strength and attractiveness as a secure investment.
A-REITs are now the largest buyers of industrial assets nationally, During Q1, 2013, 38% of a total $296 million of industrial sales were completed by A-REITs. This is the highest level of industrial A-REIT sales activity since Q3, 2010.
It is also the first quarter since 2008 when A-REITs have out-pegged private investors to be the largest industrial purchaser group nationally.
The increased buyer activity has translated to increases in capital values, with A and B grade values rising 2.9% and 2.5% respectively in the year to March. Melbourne led the charge with a 9.9% rise in A-grade capital values, followed by Perth with the next highest capital growth of 5.5%.
CBRE Senior Director of Industrial Investment Properties Angus Klem said industrial assets were now being viewed as more stable and attractive investments.
“Industrial assets generally offer higher yields and don’t have the same compliance issues that the office sector is plagued with,” Mr Klem remarked.
“In particular, A grade logistics assets are now heavily sought after by domestic and offshore buyers due to the A rated covenants, size and prime location of the buildings.”
Mr Klem said there was also more activity within the agricultural/food sector of the industrial market, with buyers looking upon these assets as high yield investments.
A and B grade warehouse yield spreads between primary and secondary yields are now hovering at 125 basis points, compared to 175 – 225 basis points seen post the Global Financial Crisis. During the quarter, A grade warehouse yields tightened across the markets to an average of 8.4%, while B grade warehouse yields declined slightly to 9.65%.
Mr Dixon said the outlook for the remainder of 2013 was positive, with forecast growth in rents, land and capital values nationwide.
“Increased occupier demand from the transport, storage and logistics sectors – particularly in the east costs markets - is driving an increase of prime warehouse developments, resulting in higher returns for investors,” Mr Dixon explained.
“We also expect an increase in the number of large developers and investors developing warehouse sites due to there being an undersupply of available prime space.”
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.