Industrial investment, supply levels continue to rise following record 2014


Investment and supply levels are expected to continue their steady climb across Australia’s key industrial markets this year following the highest level of industrial investment on record in 2014.

According to Colliers International’s latest industrial report, Building Scale: Investors Expand Collections, industrial investment volumes surpassed $6 billion in 2014 – exceeding the previous high of $5.2 billion in 2007. It comes on the back of new RCA data that found that globally, the industrial sector posted the strongest overall gains in Q1 2015, up 95% from Q1 2014.

“In 2015, we predict that supply levels will continue to increase,” Nerida Conisbee, Colliers International National Director of Research, said. “This high investment and high supply environment is leading to positive conditions for tenants with incentives starting to increase in some markets.

“At the same time, yield compression is occurring, although we are still some way off the levels they reached at the end of 2007.” Australian institutions were the dominant purchasers of industrial property in 2014, with Charter Hall, Property Link and Mirvac being the most active.

“Offshore groups continue to look favourably at Australian industrial property however the majority of the offshore volume in 2014 was due to the takeover of Australand by Frasers Centrepoint,” Ms Conisbee said. “The most active vendors were Australian institutions, however there was a spike in private owners divesting industrial stock.

“Private investors accounted for around a third of all vendor activity and showed the highest level of divestment of industrial property we have ever recorded.” Malcom Tyson, Colliers International Managing Director of Industrial, said portfolio sales were a key feature of 2014 as vendors looked to capitalise on strong investment demand, although total volumes were below particularly high levels recorded in 2011 and 2012.

“Given the average low price per property for industrial, particularly compared to office and retail, portfolio sales are popular with investors to allow them to build scale more quickly,” Mr Tyson said. In total, $1.2 billion of portfolio sales occurred in 2014. This represented around 15% of total investment volume.

PropertyLink were the most active purchaser of portfolios, acquiring three of the eight that went to market. Mr Tyson said there would continue to be a number of major industrial portfolios coming to market in 2015 as owners looked to capitalise on strong investment demand. “The high level of investor interest in industrial property has led to higher levels of other forms of activity including portfolio sales, mergers and acquisitions and offshore funding of local groups,” he said.

“Although they do not occur as frequently as portfolio sales, acquisition of a company is a rapid way to gain scale in industrial. In 2014, the acquisition of Australand by Frasers Centrepoint resulted in ownership of more than $1 billion of industrial property. If the Australand takeover was excluded, purchases of industrial property by offshore groups remained relatively subdued particularly compared to previous years. This was partly due to increased competition from local groups, but also growth in offshore groups partnering up with local groups. While it is difficult to measure exact volumes, one major example was M&G Real Estate providing funding to PropertyLink to acquire the Valad portfolio. As well as the strong investment market, Mr Tyson said the drive to build scale was also leading to higher levels of supply in the market.

“Approximately 1.8 million sqm is in the pipeline for development in 2015, which is well below the amount recorded in 2008 but the highest level since 2009,” he said. “Although supply levels are high, Brisbane is expected to have record levels of completions in 2015, accounting for around 40% of the total. Last year Melbourne and Sydney accounted for the highest levels of supply, although this is expected to moderate this year.

“Sydney is likely to see the strongest demand for industrial space in 2015, however Perth is also expected to see a pickup in demand levels which suggests that the high levels of supply in that market may not be unwarranted.” Tenant demand for industrial space was dominated by the transport and logistics and retail and wholesale trade sectors, which accounted for 64% of all leases monitored nationally in 2014 by Colliers International.

“Although manufacturing is declining in importance long term, it still accounted for 9% of all deals signed in 2014,” Ms Conisbee said. “Declining rents and firming yields have been a feature of office markets for some time now and we are now starting to see a similar dynamic in industrial markets.

“Yields have firmed significantly over the past two years however the market has varied significantly geographically. Sydney, Melbourne and Perth yields have shown compression while Brisbane and Adelaide continue to increase.

“We forecast that in 2015, Sydney and Perth are likely to continue to compress. Melbourne and Adelaide are likely to remain stable and Brisbane yields are likely to stabilise as investment demand continues to rise as investors look past the core industrial markets of Melbourne and Sydney.”


Click here to discover more information on Colliers International in Australia.



Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>