Adelaide's industrial market buoyed by infrastructure spending, tax changes
The federal government’s decision in June to build nine future frigates in South Australia, the abolition of stamp duty on non-residential property transfers and a number of infrastructure projects appear to be buoying Adelaide’s industrial sector.
The market sentiment has greatly improved and the impact is being felt across all industrial markets, said Paul Tierney, Colliers Internationals’ director of industrial for SA.
“Leasing activity has been solid in the first half of 2018 with an increased number of design-and-construct leases secured and under construction, or soon to be constructed,” he said.
“The defence sector is a major contributor with a number of projects and new construction anticipated around the metro market including Osborne, Mawson Lakes and Edinburgh.”
There were very few sales in first half of the year as buyers and vendors waited to take advantage of the final tranche of the stamp duty phase out, which took effect on July 1.
There was one major transaction in the second quarter of this year – Australian Naval Infrastructure bought a vacant 11,220-square-metre facility at Osborne in Adelaide’s north from Ferrocut Australia. ANI paid $14.4 million, according to real estate agency JLL.
Mr Tierney said sales activity was beginning to grow. “A number of sales are close to settlement and the number of sales campaigns has dramatically increased,” he said. “We anticipate larger sales transactions will result in a further tightening of yields on investment stock through the end of 2018 and into 2019.”
The industrial property at 115 Cavan Road is one of several to have sold this year. Photo: Supplied
Recent sales include 6 Senna Road, Wingfield (for $21 million) and 89 Cavan Road, Gepps Cross (for $5.21 million).
Another was a warehouse facility at 115 Cavan Road, Gepps Cross, which fetched $10.1 million.
Owner-occupiers are taking advantage of the low-interest-rate environment and strongly contesting vacant possession sales.
“This sector – like investment stock – is witnessing pricing pressure with a lack of supply and increased demand,” Mr Tierney said.
“The improvements to metro infrastructure in road, rail and port facilities are helping drive activity and development with anticipated growth and old and new precincts likely to benefit.”
These include the Northern Connector linking the Northern Expressway with Port River Expressway and upgrades to the South Road corridor, Adelaide’s main north-to-south arterial route.
On the leasing front, some developers are considering speculative development and/or refurbishment projects of potentially less competitive stock in the city’s north and north-west, analysis from agency Savills found.
“There has been a slight upswing in pre-commitment leasing activity in the circa 3000-square-metre range in the last 12 months indicative of this trend,” Savills’ July 2018 Adelaide Industrial briefing found.
Mr Tierney is witnessing this, too: “Over the last 10 years we have seen an average of two to three pre-commitment deals a year, but there are currently six under construction,” he said.
“Frasers are building a 6723-square-metre facility on the back of a pre-commitment to Tyremax at Gillman and the balance of the space is on the market for lease currently with a quoting rental of $117.50 per square metre, net.”
Property managment firm 151 Property is due to commence construction of two facilities at Goldsborough Industrial Estate for Sigma Pharmaceutical and Tailored Packaging.
Commercial & General are close to completing a new 4800-square-metre facility for Toyota Material Handling in Gepps Cross, and late last year completed the largest design and construction in SA for many years – a 20,000-square-metre facility.
“They have a number of other commercial and industrial developments underway across metro Adelaide,” said Mr Tierney.
Existing properties are also leasing well, with most sectors experiencing lowering vacancy rates. “This reduced supply is driving the design-and-construction activity along with a flight to quality … and the incorporation of advanced and automated logistics and material handling technologies [is a] driving factor,” he said.
Research by JLL has found average prime industrial rents in Adelaide’s inner west and east, north west and outer north increased slightly in the first half of 2018. And in the second quarter of 2018 there was 89,300 square metres of industrial property taken up – the largest recorded in one quarter in five years.
This was driven mostly by Drake Supermarkets committing to the design and construction of about 60,000 square metres of space – the most substantial space commitment by a single tenant in Adelaide in more than a decade, according to JLL.
LJ Hooker Commercial sales & leasing manager Stan Tettis said 90 per cent of his leasing enquiries come from Adelaide businesses. The remainder are from interstate.
The industrial market has experienced a strong turnaround from this time last year, he said.
“We’re getting a lot more inquiries,” he said. Previously “we were still making in-roads and still making sales … but it was really, really, really hard work. It’s now picked up – the slack has been taken up, a lot of the smaller-type properties have either sold or leased and stock is starting to get harder to find”.
Property Council SA chief executive Daniel Gannon said the industrial market would benefit if efforts to make Adelaide home to Australia’s space industry came to fruition.
