29 January 2015 –Industrial
property is becoming one of the most sought after asset classes, with investors
taking advantage of favourable conditions as they move to diversify their
to CBRE’s 2014 Q4 Industrial MarketView report, strong growth in the industrial
market over the past 12 months has seen a significant spike in popularity of
industrial properties, particularly in the super prime space.
CBRE Regional Director, Industrial & Logistical Services,
Matt Haddon attributed the growing appeal of industrial assets to a variety of
“Traditional logistics assets have always appealed to local
investors due to their long lease profiles, fixed income growth and corporate
tenant profiles. However, reports of strong returns in the Australian industrial
market have attracted a growing number of offshore investors, which has boosted
activity and added depth and confidence to the market,” Mr Haddon said.
"As global capital markets become more familiar with the
Australian industrial scene, sub-sectors such as refrigerated logistics and
data centres have also become appealing and so the 'investable universe' is
actually growing and creating a greater volume of opportunities than we have
seen in recent years.
He continued: “With the knowledge that the market will bid
aggressively for their assets, prospective vendors can go to the market with
confidence and this factor is playing a significant role in fueling the healthy
supply of investment grade product.”
Senior Research Manager Mark Lafferty said of the $5 billion in industrial
property transactions in 2014, large portfolio sales accounted for a
demand for industrial assets in 2014 resulted in a rise of portfolio sales, due
in part by the need for size to satisfy increased capital allocations to the
industrial sector,” Mr Lafferty said.
also allowed investors, particularly offshore groups making their initial foray
into the Australian property market, to make large scale purchases. From a
vendor perspective, growth in demand for portfolios with scale allowed them to
divest a larger number of assets they deemed as non-core in one transaction, in
order to free up capital.”
2014, more than $1 billion in industrial portfolios transacted, with the
largest being the Inghams portfolio, with the industrial portion transacting
for $299 million.
report also shows a surge in transaction activity from foreign investors during
the start of 2014, offshore groups were being outbid by domestic investors,
however in Q4 this was not the case, with four sub 7% yield purchases made by
foreign buyers,” Mr Lafferty said.
sharp yields in the super prime space being driven by offshore groups has the
potential this year to see domestic buyers focus on prime and secondary assets,
especially those with either rezoning or redevelopment potential,” Mr Lafferty
CBRE Research shows a rise in sale and leaseback transactions in 2014, with owners
looking to take advantage of market conditions to reinvest capital back into
their core business.
looking for sale and leaseback opportunities are seeking quality buildings,
strong covenants and lengthy WALEs, particularly at the top end of the market,”
Mr Lafferty explained.
industrial market experienced varied rental growth in Q4 2014. Super prime net
face rents decreased 0.2%, while prime net face rents remained stagnant for the
fifth consecutive quarter.
comparison, high tech facilities continued to perform strongly, recording 2.7%
growth during the same timeframe after four consecutive quarters of growth.
Q4, $986.2 million in industrial property changed hands. Strength in Sydney’s
residential market underpinned further residential conversion activity, with a
Chinese developer snapping up 713 Elizabeth Street in Waterloo for $46 million.
low interest rate environment saw yields compress during the quarter, with
several assets transacting at below 7%. South Sydney experienced the biggest
drop in secondary yields, falling 100 basis points to 7.3% during the three
month period and 150 basis points year to date.
flurry of sales equating to $303 million in the last quarter of 2014 helped
push industrial sales for the year to $1 billion, a 66% jump on the
corresponding period and the strongest result since 2006.
sales during the year included the Inghams portfolio, with $51 million of the
$299 million of assets based in Victoria.
industrial market is experiencing a shift in investor sentiment, with growing
popularity of non-core and infill locations amid compressing yields in the
super prime space.
yields tightened 78 basis points to 6.90%, spurring investors to target assets
with high underlying land value fundamentals in infill suburbs such as
Braybrook, Tottenham, Yarraville, Coburg, Fairfield, Oakleigh and Moorabbin.
Lafferty said while secondary assets with development potential had attracted
strong interest in particular, infill sites were traditionally difficult to
on these sites tend to be shorter and at discounted rental levels, with the
bulk of the value in these assets tied to rezoning potential or redevelopment
opportunity,” Mr Lafferty said.
development pipeline for Melbourne saw approximately 625,000sqm completed in
2014, with this set to spike over the next 12 months.
demand for industrial assets in Brisbane resulted in $451 million worth of
property changing hands during Q4, representing approximately 54% of total
sales for the year.
REITs emerged as the most active investors in the quarter, accounting for the
majority of transactions during the period.
to CBRE Research, continued demand from institutional investors saw indicative
yields in the super prime market compress to 7.32%, while primary yields
remained steady at 8.14%.
Lafferty said the strong pipeline forecast in 2015 coupled with the high levels
of investor interest would see Brisbane’s industrial market continue its
Queensland’s unbalanced economy and limited rental growth, industrial assets
continue to be in high demand and there is no evidence to suggest that
investment in the industrial sector will slow in 2015,” Mr Lafferty said.
flurry of construction projects are underway in Brisbane’s industrial market,
with approximately 256,000sqm due to be completed by mid-2015.
scale distribution and logistics represent the majority of the current pipeline
including stage one of the Supercheap Auto Distribution Centre (47,000sqm) and
ALDI Distribution Centre (56,000sqm).
industrial market experienced a record year in sales, with $377.1 million in
property changing hands over the 12 months, the highest number of sales since
2006 and the largest year on record for number of properties transacted.
total of 27 industrial properties transacted across Perth in 2014 – a 42%
increase on the previous high of 19 in 2006.
the strong sales result in 2014, Perth’s industrial market experienced another
quarter of rental contraction. Super
prime rents dropped 2% year-on-year, while prime rents were down 2.5% and
secondary recorded the biggest decrease of 4% compared to December 2013.
on from a low supply pipeline of just 49,000sqm in 2014, 101,000sqm is flagged
for completion this year. This figure would have been higher, however, two
major projects – Komatsu Distribution Centre (23,846sqm) and the ALDI
Distribution Centre (48,851sqm) – have pushed completion to 2016.
industrial sector appears to be entering an upward cycle, with demand beginning
to lift across the market, particularly in the CBD fringe sites which are
traditionally more office focused.
Lafferty said the market was also benefitting from a shift in tenant sentiment.
are beginning to discuss the option of purchasing their current facilities,
encouraged by the low cost of capital,” Mr Lafferty explained.
owners are continuing the trend of maintaining face rents to hold value, while
offering higher incentives of approximately 20%. Although others are also
beginning to drop face rents and incentives to more reasonable 8% - 10%
industrial sales totaled $114 million, with $87 million of the $299 million
Inghams portfolio transacting in South Australia.
sale of the South Australian based Inghams assets and the $153 million Coles
Distribution Centre leveraged 2014 industrial transactions to $276 million –
the highest sales period since 2006.
Canberra industrial market showed no signs of improvement during Q4, 2014, with
rents remaining unchanged from the September quarter.
challenging leasing environment is reflected in recent declines in industrial
land values. Indicative land values on small (0.25ha) allotments declined 5.4%
over the quarter to $218 per square metre, while large allotments (1.6ha)
dropped 6.9% to $135 per square metre.
supply outlook for 2015 is forecast to be stronger than 2014.
For Australian/international news or global stories, follow us on Twitter.
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 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.