Rapid yield compression is driving value growth for domestic investors in Melbourne’s industrial and logistics market despite a fall in sales values in 2016, according to a new report from CBRE.
CBRE’s Q1 Industrial MarketView shows tightening yield conditions are set to make the asset class increasingly popular in 2016, following an influx of foreign capital in 2015.
Industrial yields in Melbourne tightened by 50 basis points in the past 12 months, more than any other capital city.
Some $87.2 million worth of property was transacted in the first three months of 2016, significantly less than the $765.7 million in industrial property changing hands in the previous quarter, according to the report.
CBRE regional director, industrial and logistics, Chris O’Brien said the results as a change in buyer sentiment, set to be limited by a 55 per cent reduction in the new building supply pipeline year-on-year.
“2015 saw a significant flow of new offshore entrants to the market, looking to inject capital into low risk assets, such as real estate,” Mr O’Brien said.
“However, the first quarter of 2016 has seen a change in sentiment, whereby investors are seeking opportunities higher up the risk curve – reflecting higher yields through property fundamentals, leasing risk and value add opportunities, which bodes well for domestic players.”
Despite declines of 3.9 per cent in manufacturing GVA and a 2.3 per cent decline in manufacturing jobs in March, Mr O’Brien believes other solid economic fundamentals should continue to drive interest in the asset class.
“Notwithstanding, with banks continuing to tighten lending criteria, the low Australian dollar and favorable cash rate, Melbourne’s industrial and logistics sector will remain a sought after market on a global scale, with the higher comparative yields on offer strengthening its appeal,” he said.