Sydney, 4 March 2014 – Investment levels in Australia’s industrial property sector hit a six-year high in 2013, as attractive yields beckoned buyers into the market.
The Q4, 2013 CBRE Australia Industrial MarketView report highlighted a 22% jump in industrial investment turnover to $3.1 billion in 2013, with the December quarter accounting for $1.5 billion worth of sales.
CBRE Associate Director, Research, Claire Cupitt said relatively attractive yields offered by some industrial assets were key drivers underpinning the jump in investment activity.
“Industrial yields have been supported by growth amongst logistics and distribution related assets, which are typically perceived as lower risk by investors,” Ms Cupitt said.
Over the year to December, Grade A warehouse industrial yields compressed by 16 basis points to an indicative rate of 8.3%. Grade B warehouse yields tightened to 9.60%.
“The higher yields on offer in the industrial sector, compared to assets in other markets, have captured the interest of investors, particularly so given the positive outlook for rental growth in 2014,” Ms Cupitt added.
According to CBRE Pacific Regional Director, Industrial & Logistics Services, Matt Haddon, many investors view the industrial property market as a viable alternative to fixed interest investments, where current returns are at historic lows and seen as unattractive.
“A modern, well located industrial or logistics asset on a long lease to major corporate tenant will deliver investors with most of the characteristics they would seek from fixed interest investments – with one important upside, being capital growth potential,” Mr Haddon said.
“As a result of this demand, we are now seeing yields at well lower than the national average for specific ‘super prime’ assets that meet these criteria,” he continued.
While the recent announcement by car manufacturer Toyota to leave Australia’s shores – following in the footsteps of Holden and Ford – is expected to impact sentiment in the industrial sector, the overall impact is likely to be minimal.
Mr Haddon said the industrial sector would continue to perform strongly, despite the demise of car manufacturing in Australia.
“The top end of Australia’s industrial market is very much logistics focused and with few of the major institutional owners weighted towards the manufacturing sector, the impact will be far less severe than speculated in some quarters,” Mr Haddon said.
CBRE’s national Director of Industrial Brokerage, Jason Edge, noted: “Transport, logistics and storage continue to be the engine room of Australia’s industrial sector, with the lion’s share of growth coming from these areas of the market, rather than manufacturing, which has been a shrinking component of the industrial property market for some time.”
The report highlights that the motor vehicle and parts manufacturing sector currently produces $20 billion worth of output per annum, down slightly from $21 billion a decade ago.
By comparison, the transport and storage sector demonstrated significantly higher growth over the same period, lifting from $28 billion worth of output a decade ago to $54 billion today.
The non-discretionary sector of the market is also highlighted as a key growth area, with a shift back to consumer and housing focused spending drivers underpinning improved economic conditions.
“The logistics sector has benefited from growth in demand for non-discretionary items such as food, which is anticipated to continue into 2015,” Ms Cupitt said.
Despite strong investor activity in 2013, industrial rents across all asset classes were flat to marginally negative nationwide. In the 12 months to December, Grade A warehouse rents remained steady at an indicative rate of $103 per square metre, while Grade B warehouse rents lifted by 1.7% during the same period to an average of $86 per square metre.
Looking forward, rental growth is anticipated to be demand driven, as limited levels of new supply enter the market in 2014.
Melbourne experienced the biggest jump in capital values over 2013, with Grade A assets rising 4%. Perth saw the next highest capital growth at 3.1%.
CBRE National Director of Industrial Investment Properties, Chris O’Brien, said industrial property would remain attractive to investors looking to achieve diversification within their portfolios and increase their exposure to higher yielding assets.
“Refrigerated logistics continues to be a key growth area of the market, with institutional investors increasingly attracted to this asset class and the strong tenancy covenants that typically occupy them,” Mr O’Brien said.
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