The surge of REITs as an attractive investment vehicle worldwide is driving demand for large industrial assets in Brisbane with nearly half of the sales this year or $505 million acquired by Australian and offshore REITs.
As per the latest research by Colliers International REITs investment activity in the Brisbane industrial market has risen to 50 per cent in 2019 from 20 per cent in 2018 and circa 5 per cent in 2017.
Karina Salas, Research Manager at Colliers International said the current infrastructure investment in projects like the M1 Pacific Motorway and the Logan Enhancement Project is strengthening the outlook of the industrial market in Brisbane, with REITs identifying this city as a strategic location for industrial investments providing long-WALE rental streams.
“We anticipate that REITs will continue to drive a large portion of investment demand of Brisbane industrial assets over the next 12 to 18 months,” Mrs Salas said. “This is because the Brisbane industrial market continues to consolidate as a preferred location for a variety of operators looking for affordable large-scale warehouses in proximity to a transport network offering cost-efficient connectivity to national and international markets.”
The year-to-date volume of sales (above $5 million) in Brisbane and Yatala of $1.09 billion is on track to outperform the 2018 sale volumes. The South precinct remains as the main location of investment transactions, with circa $501 million sales representing 46 per cent of the total sales volumes.
Fierce competition for industrial assets in Brisbane across a broad spectrum of investment players has driven further compression of yields in the range of 40 to 50bps over the past year. Prime grade investments are transacting at an average yield of 5.94 per cent while secondary grade assets are trading at an average yield of 7.53 per cent.
The long-standing reduced cost of debt and the current low levels of the Australian bond yield are forecast to continue to drive further yield compression into 2020.
“Looking at the industrial occupier activity, it is the strongest in the prime grade market, driven by the relocation and expansion activity within the Yatala and South precincts,” said Matthew Frazer-Ryan, National Director of Industrial at Colliers International.
“Rental activity within the secondary market continues to soften, revealing the flight-to-quality phenomenon extended across the different Australian property asset classes.
“Southern industrial precincts have become a strategic location for industrial expansion in southeast Queensland particularly after the recent completion of the $512 million Logan Enhancement Project and the ongoing upgrade of the M1 Pacific Motorway.
“Leasing demand of existing industrial space in the South and South West precincts has been solid over the year to date, with circa 214,000sqm of gross lettable area (GLA) tenanted.
“New industrial development supply at Berrinba between 2019 and 2022 is forecast at circa 268,360sqm, with nearly 30 per cent (circa 79,200sqm) of the space reaching practical completion in 2019.
“We anticipate that the suburb of Crestmead will see the next wave of leasing deals due to its proximity to the upgraded roads along the Logan Motorway and the availability of vacant industrial land along Green Road largely owned by institutional investors (estimated at circa 40ha),” Mr Frazer-Ryan said.
The average net face rents in Brisbane and Yatala increased by 1.3 per cent YoY, to $111/sqm in September.