Yields for super prime Australian industrial assets have compressed to a record low according to new CBRE data, which highlights continued investor interest in the sector.
CBRE’s Q2 Industrial MarketView report highlights that Melbourne was the only market not to record yield compression across all categories of industrial assets in Q2, reflecting a lack of sales volume as opposed to demand. South Sydney recorded the tightest yields of any precinct in the country at 4.5% for super prime stock.
On a city-wide basis, Sydney super prime yields remain the sharpest in the country, averaging 4.75%, followed by Melbourne at 5.00%.
CBRE’s Head of Logistics Research Kate Bailey noted; “Strong demand from institutional and offshore investors seeking to increase their allocation to industrial and logistics assets is continuing to drive yield compression. This is resulting in a growing number of investors being priced out of Australia’s East Coast markets and is underpinning interest in areas such as Adelaide and Canberra from buyers seeking higher returns.”
CBRE’s MarketView report highlights that average industrial rent growth was stable in Q2 with super prime net face rents increasing 0.7% y-o-y, with Melbourne (5.5%) recording the strongest growth.
Melbourne also recorded the highest growth in land values at 26.3% over the past year for 1.6ha lots (to an average of $506/sqm).
On the investment front, $1.19 billion in stock changed hands in Q2 2019 - up 23% when compared to Q1 2019 but 32.7% lower y-o-y.
CBRE’s APAC Executive Director, Capital Markets – Industrial & Logistics, Chris O’Brien noted that the relatively limited availability of assets for sale was the primary reason for the softer transaction numbers.
The largest transaction in Q2 2019 was a 50% share of the Coles cold storage facility in Parkinson, Queensland for $134.2m representing an initial yield of circa 5.75%.
“This reflects continued investor appetite for high quality assets with a strong lease covenant – a trend expected to continue in the second half of 2019 as investors look to increase their allocation towards industrial and logistics assets. The fact that a cold storage facility was the largest transaction, further highlights the continued demand and appetite for the food sector within Australia,” Mr O’Brien said.
On the rental front, super prime rent growth was relatively flat in Q2 with just 0.4% growth recorded q-o-q, bringing total rent growth over the past 12 months to 0.7%.
This is in part due to further declines in the Perth market which is experiencing sluggish tenant demand. Rents in this market fell 1.9% q-o-q bringing total declines to 6.6% over the year. Brisbane saw rent growth of (2.2% q-o-q) for the time since 2012. This growth is reflective of a strengthening market and is expected to continue over H2 2019.
Melbourne has the strongest rent growth in Australia with super prime rents growing 5.5% y-o-y driven by continued demand and limited supply entering the market.
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CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.