Sydney, 22 July 2014 – Australia’s industrial real estate market has experienced a significant uplift in activity, with $914 million in property changing hands in Q2, 2014 – the highest Q2 sales period since 2006
The 2014 CBRE Industrial MarketView Q2 report shows a sharp rise in investment activity in the nation’s industrial market during the three months to June 30, with sales during the quarter up 124% on the corresponding period in 2013.
Sydney recorded the highest levels of investment activity over the quarter, with $395 million in industrial property over $5 million transacting, equating to a 73% increase on the same period last year.
Melbourne also experienced a spike in sales, with $188.3 million in industrial sales recorded during the same timeframe, the highest Q2 sales period since 2011.
CBRE’s Regional Director, Pacific, Industrial & Logistics Services, Matt Haddon said the upturn in transaction activity in Q2 highlighted improved investor sentiment in Australia’s industrial market.
“Industrial assets are increasingly becoming an attractive option for investors looking for a secure investment with significant capital growth potential,” Mr Haddon said.
“Amid weaker economic conditions over the past few years, investors are targeting secure industrial investments in the form of Super Prime assets. These assets are a viable alternative fixed interest investment, typically defined by a strong lease term of 10 plus years, strong covenant and new or recently constructed building in a core location.”
Significant sales undertaken during Q2, 2014 include the Coles Distribution Centre in South Australia for $157 million, the $106 million Abacus portfolio, $65 million UGL portfolio and the $53.5 Brownes Dairy Processing facility in WA .
Mr Haddon forecasts investment activity in Australia’s industrial market to continue gaining momentum.
“Current investor activity and the very buoyant transaction pipeline that is anticipated to materialise during the second half, may see total 2014 sales challenge the record figure of $4.9 billion, set just prior to the GFC in 2006,” Mr Haddon explained.
CBRE Research Manager Mark Lafferty said while rental growth had remained relatively flat over the quarter across the nation, the prospect of gains from 2015 onwards was further underpinning activity in the market.
“The transport and logistics sector of the industrial market is forecast to continue driving growth, with increased occupation in this sector, coupled with an increase in output and leasing activity, offsetting the decrease in manufacturing,” Mr Lafferty said.
The report forecasts a rental growth of 0.5% nationally in 2014, lifting 1.0% in 2015 and a further 1.75% in 2016.
Australia’s industrial property market is also set to benefit from a flurry of new development nationwide, with both the federal and state governments signaling a strong commitment to several upcoming transport infrastructure projects.
Infrastructure projects slated by government include the $11.5 billion WestConnex project in Sydney, Melbourne’s $1.5 billion East-West Link, the $866 million Perth Freight Link, the Toowoomba Second Range Crossing Queensland and North-South Corridor in Adelaide.
Mr Lafferty commented: “The impact on the industrial market is likely to be positive in the event the projects go ahead, with such developments reducing costs and boosting direct demand for industrial space.”
Investor confidence in Sydney’s industrial market appears to be strong, with $395 million in property changing hands during Q2, 2014 – a 73% increase from the same quarter in 2013.
Firming confidence is supporting increased supply levels, with 600,000sqm of new industrial stock due to be completed this year. Sydney’s outer west will account for 58% of new supply, while future developments will be built to best service the transport and logistics sector, with a focus on Super Prime logistics facilities.
Sydney industrial rents remained stable in Q2, 2014, albeit modest growth in secondary stock in western precincts. Rental growth is forecast to gain momentum in 2015 as the storage and logistics sector further strengthens.
Melbourne’s industrial market is set to benefit from a flurry of new infrastructure developments earmarked for the city including the western section of the East-West Link project. When delivered, access from the western industrial market to the Port of Melbourne will be improved significantly, decreasing travel times by 15-20 minutes.
The development pipeline for Melbourne looks strong, with 380,090sqm of new supply due to be completed in 2014. The increased development pipeline comes off the back of increased occupier demand, with developers willing to offer new buildings, some with purpose built facilities, at similar occupancy costs to occupiers for existing facilities.
During the second quarter of 2014, $188.3 million in industrial property changed hands, the highest Q2 volume since 2011. The sale of 251 & 261 Salmon Street for $28.25 million was the largest individual property transaction in Victoria over the quarter, representing an initial yield of 8.31% and WALE of 5.5 years.
Brisbane’s supply pipeline for 2014 is forecast to be 49% above the 2013 total, at 475,000sqm. Specifically, development activity has increased to its highest level since 2008, signaling a shortage of prime warehouse space and representing more than 100,000sqm of the total 2014 development pipeline.
Brisbane experienced an upturn in investment activity over the first half of 2014, with $161 million in property transacting during the period – a 16% increase on the corresponding period in 2013.
Prime assets continue to be the preferred asset type, although investors are increasingly looking to the secondary market for value add opportunities due to the limited availability of investment grade properties for sale.
The industrial market experienced rental contraction for the first time since March 2011 during Q2, 2014, with rents softening 1% across all Perth regions. This is largely due to rents being slow to adjust to increasing vacancy levels as a result of the mining investment downturn.
There was $91m in transactions this quarter in the Perth market, highlighted by the $53.5m sale of the Brownes dairy site in Balcatta to Stockland.
The report shows 49,000sqm of new supply is due to be completed in Perth this year, with the majority of development pre-commitment and few developers in the market to build speculatively.
The eastern corridor continues to capture the bulk of design and construct activity, with projects identified in Kewdale, Welshpool, Forrestfield and Hazelmere.
Typically driven by manufacturing, South Australia’s industrial market continues to face a lower growth projector due to the decline of this sector.
There is a fairly low level of new supply flowing through the Adelaide market, with the low growth profile and pressure on rents inhibiting developer appetite.
Industrial rents across South Australia remained stable in Q2, with Super Prime assets attracting net face rents of $88 per square metre and Prime Asset rents of $79 per square metre. Moreover, there is a significant gap between prime and secondary rents, which have been forced over time to decrease to $56 per square metre due to significant vacancies in these lower quality assets.
The Canberra industrial market remains unchanged in Q2 due to its lack of exposure to the strengthening transport and logistics sector. There is an expectation that conditions will not rapidly improve in the short term.
The supply pipeline for 2014 is significantly larger than previous years, however, it remains at the approval stage as developers wait for tenant commitment prior to commencing construction.
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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 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 350 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.