Melbourne Industrial Market Strengthens Amid Foreign Investment Surge

A surge in offshore buyer activity is fuelling growth in Melbourne’s industrial and logistics sector, with the low Australia dollar driving investment over the last quarter.

CBRE’s 2015 Q4 Industrial MarketView reveals foreign buyers made a strong push for industrial assets during the 12 month period, with foreign buyers accounting for 37 per cent of all sales nationally in 2015, compared with only 10 per cent  in 2014.

In Melbourne, sales volumes continued to rise in Q4, with $746 million in property changing hands over the period, up from $416 million in Q3.

CBRE National Director, Industrial & Logistics, Chris O’Brien said 2015 was a strong year for Melbourne’s industrial market, with investors aggressively seeking portfolios weighted with strong covenants.

“With improved fundamentals, and an increase in off shore owners we are expecting investors to go higher up the risk curve in 2016, which should further compress secondary yields,” Mr O’Brien explained.

The report reveals in excess of $1 billion in deals are currently in due diligence across Melbourne – the majority of which are being pursued by offshore groups.

“Aided by the low Australian dollar, the industrial market will continue to be a sought after market on a global scale, with the higher comparative yields on offer strengthening its appeal,” Mr O’Brien explained.

The report shows that nationally, industrial rents will enter an upward cycle in 2016, following a sharp increase in supply across the country over the past two years, which led to decreases in most markets except Sydney.
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“As supply levels begin to level out nationally, there will be significant opportunity for growth in the market this year, with an uplift in values across core eastern seaboard logistics markets, as new stock is absorbed,” Mr O’Brien said.

National industrial rents fell 1.9 per cent in the 12 months to December 2015, fuelled by a 6.1 per cent decrease in Perth, 3.8 per cent fall in Adelaide and a 3.3 per cent dip in Melbourne.

Q4 was the strongest quarter for industrial supply in Melbourne in six years, with another 840,000sqm on track for completion in 2016, underpinned by large volumes in the Northern and South Eastern precincts.

Major projects completed in Q4 included the 71,000sqm Toll distribution facility at Melbourne Airport and a 40,000sqm wholesale fruit and vegetable market in Epping.

Super prime yields continued to tighten across the Victorian capital, compressing 20 basis points over Q4.