Industrial leasing demand in Adelaide drives spending

Defence, transport and logistics (including ecommerce), consumer staples, and agriculture and wine have continued to be key sectors.

JLL’s SA industrial associate director David Ludlow said the agency was currently in active negotiations on 30,000 square metres of existing leasing stock across the state.

“The majority of this activity is in the north west and outer north [of Adelaide], the traditional defence precincts,” Mr Ludlow said.

“We are seeing significant interest and activity in areas such as Port Adelaide, Outer Harbor, Edinburgh Parks and Mawson Lakes. Pelligra’s recent acquisition of the General Motors Holden plant has been hugely successful with several tenants committed and operating from the former General Motors-owned 150,000-square-metre facility in the outer north.”

Average prime rental growth across all precincts (with the exception of Adelaide’s inner and outer-south precincts) has increased between 1.2 per cent and 2.6 per cent year-on-year to the second quarter of 2019, with the highest rates of growth recorded in the north west and north east, according to JLL.

Savills Australia executive Andrew Nagy said quality A-grade rents ranged from $75 to $85 per square metre for 1000-square-metres-plus space in the outer north, through to $130 to $140 per square metre for smaller units of less than 1000 square metres in the inner-west precincts.

“The increasing demand for quality stock in the sub-1000-square-metre category has led to areas such as Regency Park undergoing a rejuvenation as functionally obsolete buildings are redeveloped,” Mr Nagy said.

“Looking forward, we will see development in the Airport East logistics precinct in the very near future. We also anticipate construction activity growth in the outer north. As this occurs the price of land could be expected to climb.”

Major construction projects with pre-commitment leases include the Metcash and Toyota Material Handling’s facilities in Gepps Cross and Sigma’s new warehouse in Pooraka, Mr Nagy said.

“In the outer north, we are seeing a return to land-sales activity that had been quite dormant,” he said.

“This has been influenced by the Northern Connector, which is nearing completion. This highway will almost halve travel times between the inner precincts of Regency Park and Wingfield through to the outer areas of Edinburgh and Direk.”

CBRE’s Adelaide advisory and transaction services industrial and logistics senior director David Reid said the sales market continued to show an upward trajectory driven by a return of demand and a shortage of supply of vacant possession and investment stock.

“The leasing market also has recovered well into 2019. Demand from occupiers has improved and we are getting good inquiry levels from national and local businesses,” Mr Reid said.

“Since the GFC, we have had limited new supply, which, with the uplift in demand, is creating a tightening in market conditions.”

Mr Reid said the uplift in demand was thanks to factors including the announcement of the $900 million-dollar defence project with a gestation pipeline of some 30 years, an investment in the health sector with a focus on research and a commitment to high technology enterprise in the Tonsley Precinct.

Other factors included a commitment to reducing taxation on property transactions, investment in major freight infrastructure, the Northern Connector and the South Road project, as well as investment from high profile industrialists and property players in the industrial market, in the form of Sanjeev Gupta and Pelligra Group.

Knight Frank industrial South Australia sales and leasing executive Garry Partington said increased investment activity continued through the second quarter of 2019, with leased industrial assets making up 60 per cent of the volume and inquiry from eastern seaboard investors was continuing.

“There is continued high demand for industrial assets in the sub-$2 million bracket, from both investors and owner-occupiers. Driving this demand is the low cost of capital, plus the recent abolition of stamp duty,” Mr Partington said.

“Demand in the prime rental market has been consistent, producing slight upward pressure on rents.”

Looking ahead, Colliers International Adelaide director of research Kate Gray said the outlook for the industrial market was for an improvement in the supply pipeline, which was forecast to ramp up over the next two years as a result of reasonably low vacancy and an up-tick in demand, which should lead to more design and construction facilities.

“Furthermore, relatively low vacancy rates are expected to result in some higher-than-average rental growth over the next two years,” Ms Gray said.

“Demand for investment-grade stock is expected to remain high with the buyer pool strengthening, and therefore there is scope for further yield compression for prime-grade investment stock with long WALEs [weighted average lease expiry].”