Demand drives the volume of industrial investment to unprecedented levels

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Unprecedented interest in industrial and logistics real estate has brought Australia’s total investment volume to nearly $ 14 billion by 2021, nearly double the record $ 8 billion reached before the pandemic in 2019.

The increase in demand, according to Knight Frank, can be attributed to demand for the industrial sector from developers, investors and tenants as e-commerce continues to grow in the country. With the intensification of competition for the industrial park, the use of the existing park is now 25% higher than the average for the third quarter of 2021. 82% of the investment volume took place on the east coast.

Katy Dean, director, head of industrial research at Knight Frank Australia, said she expects interest in the sectors to continue beyond 2021, with the development pipeline slated for 2022 to reach a new peak with 2.6 million m² planned.

“We see that competition for industrial inventory continues to intensify, with use of existing inventory increasing 25% above the five-year average in the third quarter to reach 500,000 m² on the east coast. This, in turn, is pushing some markets such as Sydney West and West and South East Melbourne to a critical shortage of existing blue chip inventory, and therefore significantly squeezes the volume of secondary supply available. . This is also the case on the east coast, where the volume of secondary supply available (+5,000 m²) has now fallen to its lowest level since 2011 after falling by almost 45% over the past 12 months. only, ”she said.

“Record volumes of private equity also continue to flow into the industrial sector, as investors also drive up prices through acquisition and development activity. This demand created strong favorable winds in the third quarter, leading to a further contraction in vacant space and the return of rental growth rates of 1 to 2% during the quarter in most markets. We anticipate further strong rental growth and investor interest in this sector through 2022, supported by low vacancy rates, supply constraints, continued expansion of e-commerce and increased competition. for space. “

Land values ​​also saw a sharp increase in the third quarter, with the average overall price of small lots increasing by 4.1% and lots of 1 to 5 ha increasing by 5.8%. This growth path will continue, with much higher growth rates expected in constituencies facing critical short-term land shortages. The volume of vacant supply available fell for a fourth consecutive quarter, falling 2.8% overall, its lowest level since January 2013.

“The compression rate of super prime yields has started to slow, but on a year-over-year basis it is still showing an average compression of 116 basis points since the third quarter of last year. In the third quarter, Melbourne super-prime yields compressed 50bp, while Perth and Adelaide compressed 25bp to 4.75% on average, Brisbane compressed 5bp to 4.2% and Sydney held steady at 3 , 75%, ”Dean said.

“There remains a question mark as to how low yields can go in Australia – the market will retain its strong momentum, but with yields at these low levels there may be limited room for further movement out. the decline in 2022, particularly in Sydney and Melbourne. “

The industrial rental business is booming in Sydney, with rental volumes already at 1.05 million m², eclipsing the total volume for 2020. pent-up demand has lifted utilization rates to 81% above from the same period last year to the third quarter. Zoned and serviced land in the port city is scarce, and some sites sell for over $ 1,000 / m², suggesting that there will be significant growth in land values ​​in the fourth quarter, through 2022. Sydney also hit a new low vacancy supply record, with strong tenant demand in the third quarter causing an 8% quarter-over-quarter drop to 201,248m², down 71% from one year to the next.

The value of Melbourne’s industrial land has skyrocketed, driven by developers’ appetites for the western and northern regions, with the transportation and warehousing sectors dominating. An acceleration of development will soon follow, with 1,172,297 m² of new industrial premises to be delivered this year, and the pipeline should increase further in 2022 to reach 1,319,855 m². Melbourne saw the value of its land for lots of 1 to 5 ha increase by 67% this quarter and by 54% since the start of 2021. At the same time, the occupancy of vacant spaces increased by 61% compared to the third quarter of 2020.

In Brisbane, rental activity remains strong with 12-month take-up 58% higher than a year ago and third-quarter take-up of 224,031 m² 67% above average on five years. The vacancy rate is now 29% lower than a year ago despite the start of major speculative projects, which are expected to represent more than a third of the pipeline in 2022. Land ready for immediate development continues to be highly sought after with rising prices. 22 percent in the last year for blocks of 1-5 ha.

The Perth industrial market was supported by the Dexus and APN Industria REIT partnership which saw the purchase of a $ 1.5 billion industrial property portfolio. As the demand for leasing gains momentum in Perth and a new cycle of rental growth emerges, growing confidence in the business demand profile is triggering significant yield squeeze and pushing up property prices for small batches of 4.7% in the third quarter.

In Adelaide, the supply of industrial land remains limited, with small lots increasing on average by 6.8% quarter over quarter and lots of 1 to 5 ha increasing by 5.9%. Developers and owner-occupiers are increasingly looking to brownfields where possible, and several speculative developments are underway with developer confidence backed by leases ahead of practical completion.

Image: Frasers Property Industrial


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