Is industrial property still a good investment?
Global fund managers are jumping on board and e-commerce has transformed the sector, so can commercial property investors look to industrial for double-digit returns?
Over the past decade, the industrial sector has undergone a remarkable transformation, evolving from the least favoured to the most preferred among the big three commercial investment classes (retail, office, industrial).
This shift has been accompanied by impressive growth, with some properties more than doubling in value over five years.
But given such significant expansion, what underpins the continued attractiveness of investing in industrial properties?
Let’s delve deeper into the key factors driving the market’s positive prospects.
Unprecedented industrial growth
Australia’s industrial property market has experienced exponential growth, nearly doubling to almost $300 billion in less than three years.
This surge has elevated the sector to the same level as the office sector, fuelled by high warehouse rents and large-scale developments.
The remarkable growth of the industrial sector underscores its robust fundamentals, driven by increasing demand for warehouse spaces and ongoing infrastructure developments supporting logistics and e-commerce activities.
E-commerce boom
The proliferation of e-commerce, particularly accelerated during the pandemic, has provided a significant boost to the warehouse sector.
With sustained demand and low vacancy rates, industrial properties are poised to exceed $400 billion in value over the next decade.
The ongoing surge in e-commerce activities has reshaped consumer behaviour and logistics requirements, creating sustained demand for industrial spaces, particularly warehouses and distribution centres, thus underpinning the sector’s continued growth trajectory.
Global property investors taking note
Global fund managers have been observed shifting their focus from office spaces to prime logistics properties.
This transition is primarily driven by diminishing attractiveness of office markets, marked by rising vacancy rates and the spectre of increasing interest rates.
The strategic reallocation of capital from office to industrial properties by global fund managers signifies a broader recognition of the industrial sector’s resilience and growth potential, particularly amid evolving market dynamics and economic uncertainties.
Outperforming office, retail sectors
Despite a cooling from pandemic-induced highs, the industrial property market remains resilient, characterised by solid rental growth and abundant capital seeking investment opportunities.
Forecasts suggest that industrial and logistics assets are poised to outperform other commercial asset classes in the near future.
Commercial sector with double-digit growth
Projections indicate a continued pattern of high single-digit rental growth in the industrial sector, especially in areas with minimal vacancy rates.
Recent major transactions, such as the $800 million acquisition near Western Sydney International Airport, further underscore the enduring appeal of industrial investments.
The ongoing influx of institutional capital into the industrial sector and the execution of significant transactions highlight the sustained investor confidence and attractiveness of industrial properties as a key component of diversified investment portfolios.
The industrial property market offers not only robust returns but also presents a compelling growth trajectory supported by underlying market dynamics and evolving consumer trends.
