Best & Less warehouse nets record deal for AMP Capital, Swiss Re
The Best & Less-occupied warehouse at 1 Eucalyptus Place sits on six hectares of industrial zoned land.

Best Less warehouse nets record deal for AMP Capital, Swiss Re

AMP Capital has sold a Sydney logistics facility to Lendlease’s investment platform for $130.1 million on a 3.62 per cent yield, a record result fuelled by low interest rates and the powerful appetite from institutional investors for industrial assets exposed to the e-commerce boom.

The Eastern Creek warehouse is the national distribution hub for clothing retailer Best & Less, owned by private equity firm Allegro Funds, which, in an unrelated move, pulled a proposed float of the popular brand last Friday.

It is also the final property to find a buyer in a five-asset, $750 million portfolio, which has been progressively divested by AMP Capital as it winds up the real estate mandate it managed for European reinsurance giant Swiss Re.

The 35,000square metre warehouse was acquired for the Swiss Re mandate two years ago for $99.6 million from Steinhoff Asia Pacific, as the embattled retailer sold off real estate to shore up its balance sheet.

But it is the eye-watering 3.62 per cent yield, thought to be the sharpest yet for an institutional-grade industrial asset, that is likely to catch the most attention in a market which is already highly enamoured of logistics real estate, as it rides the upside of the structural change dismantling traditional retail investment in favour of online shopping.

The scale of the deal – it is NSW’s largest single asset transaction so far this year – also points to the depth of demand for such assets from fund managers, institutions and their financiers, given the market has only just absorbed the history-making $3.8 billion sale of Blackstone’s Milestone Logistics portfolio last month.

That was followed in quick succession by another Blackstone industrial exit, the sale of its 90 per cent stake in the Fife industrial and logistics portfolio to PGIM Real Estate and Manulife for about $850 million. Both deals were struck at 4.5 per cent or less.

“The rise of e-commerce, combined with other tailwinds supporting the occupier market, has seen the industrial and logistics sector in Australia become increasingly institutionalised, with buyers drawn in by strong lease covenants and stable income collection,” said JLL’s head of capital markets for industrial and logistics in Australia, Tony Iuliano, who brokered the record deal with colleague Roger Miller.

“We have also seen increasingly sophisticated capital sources enter the market in recent years, including sovereign wealth funds and insurance groups, who were substantial net buyers of Australian industrial and logistics assets in 2020.”

Most obviously, the pandemic has hastened the switch by consumers away from bricks-and-mortar retail and into e-commerce, thereby increasing the demand for logistics space.

Also, the disruption to global supply chains – which could ultimately threaten economic recovery with the rising cost of shipped goods – is prompting local distributors to stockpile where they can, adding a further premium to logistics space.

Mr Miller highlighted the trend towards higher inventory levels and the reshoring and near-market sourcing of manufacturing as further drivers in demand for industrial assets.

“The industrial sector is characterised by exceptionally strong real estate fundamentals, including limited speculative activity, strong occupier demand and significant capital appetite at a level never before seen in this country,” he said.

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