Transport & logistics fuel national industrial market
Transport & logistics fuel national industrial market
18 May 2014
Sydney, 18 May 2014 – Sustained growth in the transport and logistics sector over the past two decades will finally see it overtake manufacturing as the largest growth driver of Australia’s industrial market.
The 2014 CBRE Australia Industrial MarketView Q1 report shows an evolutionary shift in industrial occupancy away from traditional manufacturing, with tenant demand increasingly aligned with the distribution of consumer goods.
CBRE Research Manager Mark Lafferty said the growing profile of transport and logistics had been a steady process over the past 20 years.
“Over the next decade, we expect transport and logistics to continue absorbing manufacturing space nationwide, resulting in this becoming the largest sector of the market from a space occupancy perspective,” Mr Lafferty said.
“While the shift away from manufacturing will be evident from a demand perspective, this contraction is likely to have minimal impact on the industrial market overall, due to growth in transport and logistics counteracting this demise.”
Over the past 10 years, transport and logistics GDP has jumped by 39%, while manufacturing has fallen by 2%.
The report shows the subsequent 10-year period will see the expanding transport and logistics sector absorb an additional 10.4 million square metres of space, while during the same timeframe, manufacturing will shrink by 638,000 square metres.
Investors are expected to see greater returns with investment assets in the year ahead due to an anticipated recovery in industrial GDP from 0.7% growth in 2013 to 2.6% in 2014, combined with forecast rental growth.
“Potential improved rent growth and anticipated yield compression are expected to drive returns of more than 10% in the year ahead,” Mr Lafferty explained.
CBRE’s Regional Director, Pacific, Industrial & Logistics Services, Matt Haddon said investors were increasingly viewing the industrial property market as a viable alternative to fixed interest investments, where current returns were at historic lows and seen as unattractive.
“A modern, well located industrial or logistics asset on a long lease to a 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.
“Moreover, there is heightened interest not only domestically for Australian industrial assets, but also from offshore investors, with $4.5 billion to $5 billion of stock expected to change hands this year.”
Yields for Grade A warehouse assets compressed by eight basis points in Q1, 2014 and are currently 20 basis points lower than during the same time 12 months ago.
The report shows that a wide margin between prime and secondary assets remains, however, this is expected to narrow as the level of investment demand is unable to be satisfied due to limited prime asset opportunities.
Anticipated rental recovery in 2015, with Sydney and Melbourne to be the first to see this shift, will provide investors with the necessary confidence to refocus their attention on secondary stock.
Investor confidence in Sydney’s industrial market appears to be strong, with 583,000sqm of new supply in the pipeline for 2014 – the largest new supply since 2008. Strengthening demand from the transport, logistics and storage sectors is expected to further underpin new supply in 2015.
As state based manufacturing continues to decline in line with expectations, demand for storage and logistics assets will gain traction as increased imports are shifted away from Port Botany. Western Sydney and South Sydney precincts are set to benefit most from this market shift.
Yields are forecast to continue on a modestly tightening trend, driven by precincts that can best service the transport and storage sector.
Despite soft rental conditions at present, improved economic indicators in 2014 are expected to underpin rental growth in 2015.
In line with the shift away from manufacturing, growth in Victoria’s transport and logistics sector is evolving at a rapid rate, and is expected to continue, leading to an increase in demand for space, and underpinning new supply.
In 2014, an additional 671,199sqm of new supply is forecast for completion – a significant increase on the 296,033sqm completed in 2013. The south-east will account for the majority of new supply (41%).
Melbourne accounted for 56% of the industrial sales nationwide during Q1 of 2014, with $282 million of sales recorded during the period. This figure is significantly higher than the $87 million recorded during the same quarter in 2013.
In 2014, 600,000sqm of industrial space is due to be completed – 29% above the 2013 total. Much of this will be driven by mid-sized and larger space users particularly associated with retail warehousing and distribution. Speculative developments represent over 100,000sqm of the 2014 pipeline – the highest level since 2008.
During the first quarter of 2014, approximately $90 million worth of transactions has been undertaken, equating to a 52% increase on the same period last year.
Approximately 71,000sqm of new supply is due for completion in Perth this year, with the majority of development mainly pre-commitment driven for large buildings over 3,000sqm. Supply levels are expected to drop for industrial in the short term, while Perth land values remain the most expensive in the nation due to sustained shortages.
Total industrial sales for 2013 in Perth totalled $255 million, the highest quantum of dollars sold annually since 2010.
During Q1 2014, there were three industrial investment transactions over $5 million, equaling a combined value of $39.3 million.
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. In line with the impending closure of Holden’s Elizabeth facility, new supply will come online in 2017.
Grade-A warehouse rents decreased a further 1.5% in the year to December 2013, With further declines likely as occupiers look to better located markets for more appealing offers.
Occupier confidence remains subdued in the Canberra industrial market, with rents and land values falling in the first quarter of 2014 for the second consecutive quarter.
Growth in Canberra’s industrial market is limited by the lack of significant port or transport infrastructure, as without such, there continues to be a lack of demand for large scale industrial assets.
The Canberra supply pipeline for 2014 will see a total of 25,800sqm of new space completed.
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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 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.