Industrial property is among Australia’s most sought-after real estate, with both domestic and global investors driving demand for space in the sector.
A surging market for industrial property boosted revenue at JLL's Australian arm, which recorded a 10 per cent rise in 2018.
JLL also said as much as $21 billion of investor capital is looking for a home in Australia's industrial market.
Against a backdrop of limited prime assets on the market, constrained within inner and middle ring metro areas, JLL’s Australian Industrial Investment Outlook 2019 forecasts that capital seeking industrial property will begin to move toward strategic partnerships and joint ventures as an “alternative means to gain exposure into the industrial property sector”.
Approximately $3.2 billion in investment sales occurred across the national industrial sector in 2018 for transactions valued $10 million and more.
Investment activity was concentrated toward Australia’s east coast, which represented 90 per cent, or $2.9 billion, of total national sales.
Gross take-up for Australia’s industrial floorspace exceeded the 10-year annual average of 2.1 million square metres for the fourth consecutive year in 2018.
JLL head of capital markets Tony Iuliano believes demand for industrial property in Australia will continue to rise, particularly as institutional investors gear towards greater exposure in the industrial sector.
“We have identified $21 billion of capital wanting to deploy into Australia’s industrial and logistics assets and therefore project another year of strong demand,” Iuliano said.
“The competitive environment is extremely high as there is a scarcity of product available to purchase… With limited prime assets on the market, we project that the capital seeking industrial property will begin to move towards strategic partnerships as an alternative means to gain exposure into the industrial property sector.”
New South Wales recorded a significant decline in investment activity between 2017 and 2018, from $1.7 billion to $1.2 billion in 2018 (a fall of 28 per cent), the lowest figure recorded since 2012.
“Lower investment volumes is a symptom of reduced stock availability rather than a reduction in investor demand,” the report said.
“This, coupled with the continued levels of demand from onshore and offshore buyers has led to prime yields compressing to an average of 5.31 per cent, while the prime/secondary spread has narrowed and average secondary yields are sitting at 6.15 per cent.”
Related: Sydney Still Among World's Most Expensive Industrial Markets
Victoria’s total investment sale volumes increased by 10 per cent over 2018 compared to 2017, despite a continued lack of built industrial investment product.
Victoria represented 36 per cent of Australia’s total sale volumes (for transactions $10 million and over).
Investment sales in Melbourne were concentrated within the west and south east precincts, with notable sales including three (of nine) properties part of Cache’s Logistics Trust portfolio, as well as the Kmart Distribution Centre (76,900sq m facility) at Truganina snapped up by Logos for $119 million.
Queensland investment sale volumes in Queensland dropped by half over 2018 ($491 million) compared to levels recorded in 2017. But like Sydney’s market, there was limited opportunity to purchase stock.
The state represented 15 per cent of Australia’s total sale volumes for transactions $10 million and over.
The largest transaction recorded over the year was Mapletree’s purchase of Coles distribution centre in Heathwood for $105 million.
“Industrial assets with strong underlying leasing covenants will be highly sought after as investor demand remains firm. An opportunity remains for private owner occupiers to capitalise on current conditions, by offering assets for sale on a lease-back basis,” the report said.
Sydney and Melbourne ranked highly among global gateway cities in terms of prime yields.
The report says Australia’s industrial market is in a “process of adjustment amid globalisation of the industrial sector,” JLL benchmarked global industrial markets in terms of prime yields by city.
In 2018, Melbourne (5.9pc) and Sydney (5.3pc) rank among 18 markets ranging from 3.5 per cent in London to 11.8 per cent in Moscow.
“In this context, Sydney and Melbourne remain attractively priced relative to a number of gateway cities,” Iuliano said.
The report also identifies the Australian industrial market’s key drivers which include the expanding e-commerce sector, a greater focus on an agile supply chain network, the growing food and grocery sector and increased investment in technology and automation.