As much as $21 billion of investor capital is seeking a home in Australia’s booming industrial sector, according to the latest forecasts from commercial agents JLL.
Investment in logistics facilities and other industrial property fell 40 per cent to $3.2 billion in 2018 – the first time since 2012 that industrial sale volumes were below the 10-year annual average of $3.7 billion – but this was due to the diminished availability of assets, not a lack of demand, JLL said.
JLL head of industrial and logistics, Tony Iuliano, said demand for industrial property in Australia would continue to rise, particularly as institutional investors geared their strategies towards greater exposure in the industrial sector and built their industrial investment portfolios.
“We have identified $21 billion of capital wanting to deploy into Australia’s industrial and logistics assets and therefore project another year of strong demand,” Mr Iuliano said.
“With limited prime assets on the market, we project that the capital seeking industrial property will begin to move towards strategic partnerships as an alternative means to gain exposure into the industrial property sector,” he said.
Institutional investors accounted for 49 per cent of deals in 2018, up from 41 per cent in 2017, with private investors and developers taking almost a quarter of the market each, JLL figures show.
Among the big institutional funds active in Australia are the likes of US giant Blackstone, homegrown LOGOS and Singapore sovereign wealth fund GIC, which has partnered with Dexus on a $2 billion unlisted logistics trust.
Industrial juggernaut Goodman Group, which reports its interim results on Thursday, remains the country’s leading global property player on the back of its development projects for the likes of Amazon and Walmart.
Alongside demand for assets, demand for space from occupiers surged again in 2018 according to JLL, with gross take-up of industrial floor space totalling more than 2 million square metres – the 10-year average – for the fourth year in a row.
“Strong demand, coupled with the limited supply of stock have translated to strong appreciation in land, rent and capital values, and downward pressure on transaction yields,” said JLL in its 2019 Australian Industrial Investment Report.
“Looking solely at Australia’s east coast, yield compression has been more pronounced – particularly for secondary grade assets, as the lack of prime stock meant a shifting interest toward secondary product in a bid to secure industrial space.
“Prime yields have compressed by 30 basis points [over the past 12 months] to a current average of 5.82 per cent, and secondary yields have compressed by 48bps to 6.88 per cent,” the report said.
Mr Iuliano said 2019 would again prove difficult for investors to acquire assets of scale, a feature of the market which has driven investors into lower-grade properties.
“Fewer portfolio offerings have occurred over the past 12 months and this resulted in the acquisitions of secondary-grade stock in infill locations, particularly over the first half of 2018.”
Factors drawing international capital to Australia are the attractive returns relative to other global markets alongside other factors like an expanding ecommerce sector, rapid urbanisation and increased investment in automation and technology.
Benchmarking prime yields in Australia compared with other global cities, JLL found Melbourne at a yield of 5.9 per cent and Sydney at 5.3 per cent, compared with 3.5 per cent in London.
“In this context, Sydney and Melbourne remain attractively priced relative to a number of gateway cities,” Mr Iuliano said.
JLL Australian research director Sass J-Baleh said demand for space in strategic locations will continue to rise across all Australian cities in 2019 as both existing players and new market entrants seek to set up and strengthen their supply chain networks.