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Aussie Housing & Home Reno Market Sparks Big Industrial Demand

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The latest research is in, and it reveals that a spike in household trade sales across Australia is set to drive the next wave of growth in the industrial and logistics sector.

CBRE recently released their Industrial and Logistics, Q3 2016, MarketView report. It highlights increased levels of spending on household goods - driven by a national spike in home renovations - is offsetting reductions in manufacturing.

CBRE Senior Managing Director of Industrial and Logistics Matt Haddon said the buoyant housing and home renovation market was increasing demand for warehouse space in several markets across the country.

"Greater demand for warehouse space for the occupation of household trade suppliers is increasing competition and supporting rental growth prospects in core markets," Mr Haddon said.

The report shows household trade growth has lifted 5.3% in the past 12 months, while increasing home approvals over the same period have also strengthened demand for warehouse space.

Mr Haddon said the underlying strength of Australia's housing sector would continue to be a steady source of growth for the industrial and logistics market.

Investor appetite for high quality, well leased industrial assets remains strong, with buyers seeking out opportunities in core markets on Australia's east coast.

In the three months to September 2016, $968 million in industrial and logistics assets changed hands – the strongest quarter of this year.

Sales volumes were driven by a number of major transactions in Victoria, including the GM Holden site in Port Melbourne for $130 million and the Coles Distribution Centre in Truganina for $100 million.

Super prime yields meanwhile have continued to compress in Sydney and Melbourne, falling by 40 basis points year on year to 6.3% - driven largely by the strength in demand for premium assets.

CBRE Senior Research Manager Kate Bailey said Australia's industrial and logistics sector was showing evidence of a two-speed market, with rents on the east coast continuing to increase while the resource states of Western Australia and Victoria remained sluggish.
State Highlights

Sydney
New South Wales' strong housing market, coupled with an upturn in retail trade, has supported growth in the state's industrial sector.

"Retail trade has been growing consistently, both nationally and in New South Wales. With this comes additional demand for warehousing space in close proximity to residential centres," Ms Bailey said.

"A solid pipeline of infrastructure projects earmarked for the state is also expected to provide a stimulus for industrial occupiers."During the quarter, super prime net face rents increased 2.0% and secondary rents lifted 2.2%. The outer west has recorded the strongest growth, with an 11% jump for prime assets.

The quarter has also seen strong interest from offshore investors, with Singapore-based Mapletree Logistics Trust securing Altis Property's $85 million portfolio.
Melbourne
Industrial sales so far in 2016 totalled $1.42 billion - 56% greater than in the same period in 2015.

"Despite strong offshore interest in industrial assets, interest from domestic buyers remains high. Solid sales growth is anticipated for the rest of the year, with continued high levels of enquiry from foreign and local buyers," Ms Bailey said.

During Q3, super prime yields compressed by 17 basis points to 6.0% - reflecting the continued demand for high quality industrial assets.

By comparison, yields for secondary assets are continuing to decrease at the same rate as super prime assets, highlighting investors' ongoing search for good returns.

Melbourne industrial rents recorded positive growth for the first time since the June quarter in 2014 – a trend that will continue amid a reduced supply pipeline in the short to medium term.

Super prime rents jumped 0.8% in the quarter – underpinned by a 3.6% increase in the north – while secondary rents remained unchanged.
Brisbane
Occupier demand for industrial space is being driven by a flight to quality in Brisbane, with tenants increasingly chasing higher quality assets.

"Landlords have become more aggressive in attracting and retaining tenants, with incentives edging higher to an indicative 15% - and in some cases, incentives twice this level have been observed," Ms Bailey said.

Super prime yields remained around 6.5% in Q3, with prime yields hovering at 7.4% and secondary yields at 8.7%.

While 2016 sale volumes are down on 2015 - $402 million versus $578 million in the corresponding period – institutional investors are growing portfolios by funding design and construct or speculative development.
Perth
Consolidation continues to be a persistent trend in Perth's industrial market, with occupiers focused on increasing efficiency and lowering costs.

Industrial rents declined during Q3, with super prime net face rents dipping 4.9% and secondary net face rents lowering by 4.8%.

"The ongoing rental softening in the industrial market directly corresponds to the weaker confidence evident as a result of the cooling resources sector," Ms Bailey said.

Industrial

Yields remained unchanged over Q3, following yield compression in the first half of the year – driven by the low interest rate environment and lack of supply of well-leased, investment-grade assets in the market.
Adelaide
Adelaide's inner west is emerging a sought after industrial pocket, with low levels of supply in the area underpinning strengthening levels of demand for assets.

Yields remained flat across all markets in Q3, following a period of strong compression, which is reflective of investors seeking out investments that offer better returns relative to risk.

Adelaide's industrial supply pipeline remains strong, with the September quarter seeing 23,310 square metres of new space added – the strongest quarter of 2016.

Despite this however, only a small amount of new industrial space is forecast over the next 12 months, which may help to support some rental growth.
Canberra
Canberra's Mitchell industrial precinct is positioned to benefit from the Metro Capital light rail project currently underway, with it underpinning both demand and investment in the space.

"The Mitchell industrial area will benefit from this massive infrastructure project in both the construction phase and the operational phase as operating the rail line will require the employment of these industrial skills," Ms Bailey said.

There has been just one transaction in Canberra's industrial market this year, a multi-use showroom in Mitchell for $6.55 million.

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Article originally posted at: https://https://theurbandeveloper.com/articles/housing-market-sparks-industrial-demand