Investor appetite for industrial property has become supercharged since the onset of the pandemic, with interest in e-commerce and logistics assets driving record levels of development and transactional activity.
Analysis by Real Capital Analytics Australia showed $13.4 billion worth of commercial …
Investor appetite for industrial property has become supercharged since the onset of the pandemic, with interest in e-commerce and logistics assets driving record levels of development and transactional activity.
Analysis by Real Capital Analytics Australia showed $13.4 billion worth of commercial property changed hands in the second quarter of 2021, a 15 per cent lift on the same time last year and the strongest quarter on record.
Domestic investors led the charge on industrial assets, spending $9.9 billion over the three months to the end of June, a 60 per cent rise on the same time in 2020.
Industrial assets accounted for $6.3 billion of closed deals, RCA said, with more than 550 properties transacted over the quarter.
The biggest deal was Blackstone’s $3.8 billion sale of its Milestone Industrial Portfolio to GIC and ESR, a transaction which was also the largest portfolio sale ever recorded in Australia.
“Quarterly sales of industrial stock outpaced offices and retail properties combined for only the second time since the start of 2020, having never achieved this feat in the previous two decades,” RCA Pacific head of analytics Benjamin Martin-Henry said.
“This record was despite a relatively quiet first quarter for the industrial market.
“With a hefty pipeline of around $2 billion of industrial deals awaiting settlement, 2021 is highly likely to be a record-breaking year."
In the retail sector, signs of a tentative recovery emerged in the first half of the year, once again spearheaded by local investors.
Sales of retail properties totalled $2.9 billion in the second quarter of the year, with formerly out-of-favour asset classes such as sub-regional shopping centres experiencing renewed demand.
Major deals included the sales of Adelaide’s Rundle Mall to Fortius for $410 million, including the office tower at 80 Grenfell Street, and Savills IM and Elanor Investors’ acquisition of a shopping centre in Toowoomba for $145 million.
Mr Martin-Henry said local investors accounted for more than 90 per cent of the $5 billion splashed on retail assets in the first half of the year.
“Conversely, over the last 18 months, offshore investors have sold more than they have purchased, resulting in a net negative position of $1.8 billion,” he said.
“Increased transaction volume for higher quality retail assets has pulled up average pricing, which may also have encouraged current owners to sell.
“With the market appearing to stabilise somewhat, owners seem to be more willing to part with well-performing centres because they will not necessarily have to accept bargain-basement prices.”
As well as a high level of sales volumes, industrial leases are also reaching new heights, with a 141 per cent increase in pre-leasing activity recorded by Knight Frank in the second quarter of the year.
Leasing activity was particularly strong in New South Wales, Queensland and Victoria, with deals in the eastern seaboard states sitting 80 per cent above their long-term averages.
Knight Frank said the volume of available vacant industrial properties declined by 23 per cent in the quarter in those states, the largest quarterly fall since the commercial agency started collecting data in 2010.
A major lease deal continuing the first half momentum, and a good illustration of the surging activity in e-commerce, was global giant Costway signing on to establish a distribution centre in Melbourne, in a deal brokered by CBRE.
Against that backdrop of elevated sales and leasing activity, industrial developers are adding to their future development pipelines.
More than 2.2 million square metres of new industrial property is expected to be completed in 2021 in NSW, Queensland and Victoria, with a further 2.1 million sqm to be built in 2022.
“The industrial sector is going from strength-to-strength and if the demand surge continues, not only will it maintain pressure on vacancies but if it outpaces supply, rents will naturally rise,” Knight Frank industrial research associate director Katy Dean said.
“A pause in construction in NSW in July may result in a delay to some planned completions in the second half of 2021.
“However, with the return of lockdown conditions in Sydney, Brisbane and Melbourne recently, we can expect a further increase in distribution and storage demand, particularly as more businesses assess safety stock levels to accommodate these future shocks.
“This will intensify the pressure on available options, especially in those locations with already historically-low vacancy levels, such as Sydney’s Outer West, Brisbane’s South and South East, Melbourne’s West and Melbourne’s South East, resulting in rent increases and further land value growth.”
Ms Dean said investor appetite for industrial assets was focused largely on e-commerce properties, while many Real Estate Investment Trusts had reported an uplift in valuations over the last quarter.
“The sector has shown its resilience and growth potential since the start of the pandemic, and the investor pool is expanding rapidly,” she said.
“This trend, combined with a lack of high-quality assets in some markets, is intensifying competition and more investors are now willing to bid at lower yields.”
