Fundamentals for industrial property remain sound

Industrial occupier and investment markets remain well placed to ride out uncertainty caused by COVID-19, despite comparisons being drawn to the 2008 global financial crisis.
The Colliers International Industrial Research and Forecast Report for H1 2020 found that unlike the GFC, where rents contracted between 9% and 25% in the prime market and 15% and 25% in the secondary market, the recent growth in demand for transport and logistics and its key role in keeping necessities of Australians in supply is underpinning the sector. 

“As a result of the COVID-19 pandemic, there are going to be tenant casualties who are unable to trade through this period and there will others who experience a significant pick-up in business revenue,” said Malcom Tyson, Managing Director, Industrial at Colliers International.

“Tenant covenants will be increasingly scrutinised going forward and length of WALE will never be more important as the flight to quality thematic plays out.”

“While certain locations may see a fall in rents and a rise in incentives, we do not expect it to be to the same extent as we saw in the GFC. Likewise, we do not expect yields to blow out by 150 basis points as they did in the GFC.”

“While there may be some softening of yields for secondary assets as risk becomes priced in, core assets with strong businesses within will remain highly sought after by both domestic and global capital and yields will remain firm.”

Luke Crawford, Associate Director, Research said, “The fundamentals for industrial and logistics property remain sound over the long term and as a result the sector is expected to be less impacted than others through this period.”

“With the exception of population growth which will take a hit in the short term as net overseas migration drops significantly off the back of border closures, the other key drivers of infrastructure investment and growth in e-commerce will continue to remain strong in the current environment.”

“The value of e-commerce has increased exponentially as a result of COVID-19 and the take-up of online retail will gain market share on brick-and-mortar retail sales, as consumers are forced to buy online and others who have never used online platforms will become comfortable with this form of shopping.”

“Highlighting the persistent demand for online retail goods due to global lockdown restrictions, Amazon in the US have hired 100,000 employees to cater towards its spike in demand for e-commerce goods. In Australia, we have seen retailers shift some of their staff to online fulfilment as they try to keep up with demand. “

Colliers’ reported that investment volumes have weakened over the first quarter of 2020, with investment activity in the quarter being at its lowest level since 2010. The weaker activity is the result of several institutions and corporates holding off on their divestment mandates as they wait to see the impact on headline investment metrics such as cap rates, IRRs and value per square metre rates. 

“In spite of uncertainty, there remains substantial levels of capital seeking to expand within the Australian logistics sector, with private investors recently becoming more active, particularly across the East Coast Capital cities,” said Gavin Bishop, National Director, Industrial at Colliers International

“Institutions remain focussed on increasing their assets under management; however, their attention has shifted towards prime assets in core locations with sound covenants and long WALEs.”

“Recent events have forced groups to reassess risk and chase security and subsequently, the flight to quality will persist as the distinction and pricing between grades, locations and covenants comes to the forefront.”

“Given the defensive nature of industrial and logistics property, coupled it being a more liquid asset compared to other property asset classes given the lower price point, industrial property is expected to remain in favour with investors in 2020.”

According to Colliers Industrial Research and Forecast report, 2020 was expected to be a record year in terms of demand. In 2019, approximately 3.8 million sqm of industrial space was leased (1,000sqm+), representing the second highest annual total on record. 

“While enquiry levels remain healthy in most markets, demand has shifted towards defensive occupiers including food and beverage retailers, e-commerce groups (including fast moving consumer goods), transport and logistics providers, data centres and cold storage occupiers,” said Malcom Tyson.

“Other businesses who were previously in the market for new or expansionary space have since placed these decisions on hold as they determine the impacts of COVID-19 on their business. “

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Malcom Tyson

Managing Director | Industrial

Sydney CBD

Malcom joined Colliers International in 1994 in the North Sydney office as an industrial sales and leasing agent. Colliers International is known in the market for their progressive, collaborative and innovative culture, and he was very determined to join their team. Now as a leader in the business, he facilitates that collaboration across our service lines both domestically and internationally to achieve our goals. Over his 26 years at Colliers, Malcom has developed and grown multiple teams; his current role is Managing Director of Industrial where he heads up the largest and most specialised industrial division in Australia.

In 2005, Malcom joined the ANZ Executive where the leadership group has steered Colliers International to reach incredible growth and further developed our brand and client offering. Malcom became the NSW State Chief Executive in 2006, and leads the 730+ staff in the NSW team across six offices and dozens of on-site management teams. Our NSW business is the Centre of Excellence for the broader Australia and New Zealand teams, and our team leads the business in innovation and best practice.

Malcom's speciality is the sales and leasing of institutional-grade industrial property, and he works to provide his clients with insights into the future of industrial property and where they can reap the most value. Having sold over $6bn+ of property over my career,  Malcom gets a great deal of satisfaction being a trusted advisor and expert for his clients.

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Luke Crawford

Associate Director

Sydney CBD

Luke has eight years’ experience in property research and real estate advisory, providing strategic advice and research to private, government and listed groups. Luke’s current focus at Colliers International is industrial research nationally, where he provides high quality research and advice on the trends impacting the sector to both internal business lines and clients.

Prior to joining Colliers International, Luke has held roles within the Real Estate Advisory Services (REAS) division at KPMG and the Research and Consultancy team at Knight Frank.

Luke’s areas of expertise include property research, demographic assessments, highest and best use analysis and supply and demand assessments across a broad range of property sectors including industrial, office, residential, student accommodation and retirement and aged care.

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Gavin Bishop

Head of Industrial Capital Markets | Australia

Sydney CBD

Gavin is the Head of Industrial Capital Markets Australia and the Head of the NSW Industrial Team at Colliers International, where he has been specialising in industrial property for 20 years. Based in the Sydney CBD Head Office, Gavin manages a highly successful team of over 40 staff across broader Sydney in key industrial precincts.

Gavin specialises in the national industrial capital markets and has excellent relationships across a broad spectrum of institutional, international and private investors. Over Gavin’s time with Colliers, he has completed hundreds of deals in industrial property, settling over $14 billion in his career to date, and leasing over 400,000sqm. Gavin enjoys a 75% market share of industrial capital markets share in NSW.

Gavin has worked extensively in the sale of industrial portfolios of up to 30 assets in one portfolio. Gavin and his team have sold 20/22 of all industrial portfolios in the Australia over the last four years, including the J.P. Morgan Portfolio ($250m), Altis Portfolio ($342.5m) and GIC/Australand Portfolio ($1.073b) and AMP Portfolio ($105m).

Some major distribution centre sales that Gavin and his team have been involved in over the last two years include, the Calibre, Eastern Creek ($130.1 million), 1 Eucalyptus Place, Eastern Creek ($90.5 million), 3 Roberts Road, Eastern Creek ($253 millions) and 6-20 Clunies Ross Street, Greystanes ($76.6 million)

Gavin has focused on building deep relationships with his clients, providing the latest in-depth information about logistics markets across Australia, which in line with his extensive track record, has seen Gavin achieve record-breaking results for his clients.

Gavin is a long-standing member of the Colliers team, having joined in 2000 as a graduate valuer. Gavin commenced with Colliers as part of their Scholarship Program and he was fortunate to work across multiple service lines and locations across Sydney, before settling in the Industrial team in Sydney South in 2001. Over the last 20 years, Gavin has progressed through the industrial business including managing the Sydney South and Sydney South West offices, before moving into the NSW State Product Director for Industrial in 2010.

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