Industrial is Australia's most in-demand property asset class for 2018
Colliers International’s Industrial Investment Review found that $4.5 billion of industrial investment sales (for transactions of $5 million and over) was recorded for FYE2018, with 86% of sales ($3.1billion) concentrated within the Eastern Seaboard states.
The availability of assets on the market continues to diminish, which is reflected in the lower volume of sales compared to the last three financial years.
“We are currently at a transitional stage of the industrial asset class, brought about by technological advancements as consumers’ demand and expectations continue to evolve,” said Malcom Tyson, Managing Director, Industrial at Colliers International.
“With the growth in global capital chasing eCommerce solutions, coupled with the Government’s significant investment in new infrastructure projects and strategies, the industrial asset class has benefitted considerably.”
“Land values have experienced record-breaking growth, and the upward pressure on rents is beginning to take place.”
From both domestic and global contexts, demand for industrial and logistics is being fuelled by the growth in eCommerce.
Australia is experiencing an annual growth rate in online retail sales of around 29% over the last four years (ABS). This, coupled with our stronger population growth rate and significant investments in transport and industrial specific infrastructure, is expected to be a key driver for an exponential growth path of online retail sales – like the US.
“Key players are positioning themselves to benefit from the eCommerce boom that is projected to occur in Australia, which has evidently transpired in the more established markets such as the USA,” says Colliers International Research.
“Institutional investors are choosing to increase their exposure in the evolving industrial sector and build their industrial investment portfolios.
“As eCommerce grows there will be positive spillover effects on the industrial market and it will certainly be a contributing factor driving demand for industrial space in Australia over the short, medium, and long term and place greater emphasis on supply chain efficiency and effectiveness in the Australian market.”
The path to achieving efficiency and effectiveness in the supply chain, which will cater for evolving demands includes; locational optimality, scale optimality and technology input.
The share of offshore investment into the industrial property market has made up around 23 per cent of total investment sales for the FYE2018. Most of the offshore acquisitions have been made by investors from the USA, followed by Singapore, China and New Zealand.
The continued demand for prime and secondary grade assets resulted in downward pressure on yields across the board. The average national yields for prime and secondary grade assets continued to compress over the past quarter, averaging 6.69 per cent and 7.83 per cent, respectively as at Q2 2018. While the market is coming to terms with lower yields, the Australian industrial property sector remains relatively attractive in a global context.
“Whilst national sector yields are trading at historic lows, we see no catalyst in the short to medium term for an easing in demand for investment grade assets. Fundamentals are sound, and market opportunities in the sector are limited, which will see strong pricing metrics continue into the foreseeable future,” said Anthony Mylott, National Director, Industrial.
“Secondary markets continue to perform well, further strengthened by the owner occupier sector in some markets.”