Sydney, 12 November 2013 - Australia’s industrial property sector is positioned for growth in 2014, with new data showing low interest rates and a depreciating Australian Dollar will lead to a retail and dwelling investment rebound.
According to the Q3, 2013 CBRE Australia Industrial MarketView report, rising consumer sentiment and dwelling investment will be the key drivers of economic growth into 2014 – a trend which is anticipated to support industrial growth in 2014 and 2015.
The forecast comes as CBRE’s Q3 results show capital values for A-Grade and B-Grade warehouses nationally lifted 1.6% and 4% respectively in the year to September. Melbourne A-Grade warehouses recorded the highest capital value growth, with a 4.9% increase for the year, followed by Perth with 2.6%.
Despite the lift in capital values however, industrial rents measured nationally saw no growth for the period. A-Grade warehouse rents remained steady at $103 per square metre, while B-Grade warehouse rents grew by 2.1%, now averaging 2.6%.
CBRE Senior Managing Director Matt Haddon said while transport and logistics maintain the biggest share of the market – accounting for 42% of Australia’s 50 largest industrial operators – the food retailing sector was gaining momentum.
“Over the past six months, there have been shifts in consumer sentiment away from non-discretionary spend to food-based spending, underpinning growth in the refrigerated logistics market as a result of rising occupier demand,” Mr Haddon said.
“Victoria, South Australia and Queensland in particular are seeing the greatest levels of demand due to a shortfall of these asset types. The recent sales of Rand Refrigerated Logistics facilities in Adelaide, Melbourne and Brisbane for a combined total circa $95 million demonstrate this.”
Historically, food retail and non-food retail sales turnover growth has been closely aligned, however, since 2005, monthly food retail sales turnover has overtaken non-food retail, rising from $7.9 billion to $12 billion in 2013. By comparison, non-food retail sales turnover grew at a slower rate, rising from $7.8 billion to $9.8 billion during the same period.
The report shows industrial economic output fell by -0.1% in the year to June 2013, with the utilities, transport, storage and postal services recording the sharpest falls in activity and the manufacturing sector returning to growth of 0.6%.
Manufacturing and retail/wholesale trade continue to be the biggest contributor to the largest occupier market – the transport services sector - accounting for $17.3 billion and $13.5 billion respectively.
CBRE Senior Research Manager of Industrial Markets Luke Dixon said the construction sector, driven by rising demand for dwelling investment, contributed $6.7 billion.
“Consumer led growth will provide supportive conditions for improving rental growth and yield compression in the second half of 2014,” Mr Dixon said, adding that there may be some stability in the first half of the year with stable rents and rising bond yields.
Yield spreads between primary and secondary yields tightened in the year to September 2013. A-Grade warehouse yields decreased nationally in Q3 to an average of 8.37%, while B-Grade warehouse yields compressed to 9.65%.
Nationally, industrial investment sales totalled an estimated $294 million – for assets valued greater than $5 million – in Q3.
CBRE Senior Director of Industrial Investment Properties Angus Klem said more stable conditions in the year ahead would continue to make industrial property an attractive investment.
“With prime industrial yields continuing to chase office at present, investors are looking towards the industrial market to achieve diversification within their portfolios and increase their exposure to higher yielding assets,” Mr Klem said.
“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.”
The report shows AREITs are leading investor demand for industrial assets, acquiring $110 million worth of assets during the quarter - outpacing private buyers who secured $80 million in the same period. Victoria and New South Wales were the most popular destinations amongst investors, with $104 million and $88 million in sales for the quarter.
CBRE anticipates 1.5 million square metres of new industrial space will be completed in 2013 – slightly down on the five-year average of 1.6 million square metres. Brisbane and Sydney have the largest supply pipelines with supply growth of 2.2% and 1.6% respectively in 2013.
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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.