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C A P I TA L M A R K E T S AU S T R A L I A &
N E W ZE A L A N D I N V ES T M E N T R E V I E W
I ND USTR I AL YE AR I N R E V I E W AND OUTLOOK 2020
Industrial
Accelerating success.
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 2
Introduction
AUSTRAL IAN INDUSTR IAL I N VEST M EN T R EVI EW
$5.7bn 13.8%
INDUSTRIAL PROPERTY TRANSACTIONS IN 2019
Demand for Australian logistics assets remains strong, with an unprecedented amount of capital seeking to expand or enter the market.
Conditions within the logistics market are a continuation Singapore, Europe and the US and was the result of a
of the trends recorded in recent years with record select number of groups aggressively expanding their
levels of infrastructure investment, continued growth presence in Australia.
of e-commerce and the low cost of debt fuelling
Given the tight investment market, investors are
demand for assets. This is particularly the case along
increasingly becoming more willing to move up the
the east coast states where 78% of the Australian
risk curve and purchase secondary assets with more
population resides.
leasing and vacancy risk to obtain increased returns.
During calendar year 2019, transaction volumes for Opportunistic purchasers seeking value add/change
industrial property totalled $5.7 billion (over $5 million), of use opportunities have also been active in recent
up 13.8% from the $5.0 billion recorded in the 2018 months, particularly within inner ring industrial markets
calendar year. The strong outcome for 2019 was the where population densities are highest.
result of higher capital values with fewer assets brought
The increasing level of demand is not being matched by
to market when compared to 2018 levels as investors
supply and coupled with the reduced cost of debt, yields
increasingly looked to hold onto their logistics assets/
continue to firm with all markets recording compression
portfolios. In fact, sales volumes by number in 2019 was
over the past 12 months. Nationally, prime industrial
the lowest it’s been since 2013. With fewer assets for
yields fell an average of 40 basis points over the past
sale, prime core facilities which were brought to market
year, led by Sydney and Adelaide markets.
in 2019 attracted significant interest and achieved strong
yield metrics. Unlike previous years, larger single assets The rate of firming in the secondary market has
came to market in 2019 which is a trend we expect to also been strong, tightening 38 basis points over the
continue in 2020. same period. Given this, groups are continually needing
to reassess their investment hurdles to allow them to
Investment activity over the past 12 months has been
participate in the market.
focussed on eastern seaboard markets but the weight of
capital has been felt nationally. Local REITs and unlisted This year’s ANZ Capital Markets Industrial Investment
funds were the dominant buyers in 2019, while record Review highlights the key transactions and trends
low interest rates have encouraged private investors impacting the Australian industrial investment market,
to re-enter the market after a brief hiatus. Offshore EUROPE
and our outlook for the year ahead. We look forward to
USA
groups remain active with investment volumes from assisting you with your Industrial requirement in 2020. HONG KONG
these groups at their highest level since 2016. Offshore ACROSS THE COUNTRY INVESTORS ARE WILLING TO
$130bn
demand has been largely sourced from Hong Kong, move
RISK CURVE
SINGAPORE
UP
OFFSHORE WORTH OF TRANSPORT AND PURCHASE SECONDARY ASSETS WITH
INFRASTRUCTURE PROJECTS UNDER MORE LEASING AND VACANCY RISK TO OBTAIN
DEMAND CONSTRUCTION OR COMMITTED INCREASED RETURNS
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 3
Key Findings
A PE RIOD OF TR ANSITION
The past few years has represented a period
of transition for the Australian logistics sector
as technological advancements and changing
consumer preferences have changed the way
industrial businesses operate.
KEY FINDINGS
RECALIBRATING TO A LOW INTEREST
NEW NORMAL RATES
when it comes to pricing of and bond yields have been
industrial assets hugely positive
This environment coupled with the continued growth of online retail sales has
required landlords to keep up to date with consumer demands and invest and
grow their portfolio to attract and retain tenants.
Low interest rates and bond yields have been hugely positive for the industrial
sector as the spread between cap rates and funding costs widen. While
headline industrial investment metrics such as cap rates, IRRs and value
per square metre rates are at record levels, on a relative basis, they remain
attractive to investors given the cost of financing is significantly lower than
previous market cycles.
The market is going through a period of recalibrating to a new normal
when it comes to pricing of industrial assets. Investors who have remained
on the sideline in recent years have missed significant capital gains
while active investors who have adjusted to changing market conditions
have been rewarded.
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 4
Key Findings
ECO NOMIC STATE OF PL AY
The Australian economy continues to grow, albeit at a slower pace as falling property ECO N O M I C F O R EC A S T S
prices led to substantial declines in dwelling investment, weak wage growth restricted
household consumption and the US–China trade dispute weighed on business investment
decisions. Current 2020 Forcast Direction
1.7% 2.5%
GDP
Nevertheless, the economy recorded its 28th markets, recent interest rate cuts and resilient GDP GROWTH FORCAST AVERAGE
2.7%
year of uninterrupted economic growth, commodity prices which remain elevated by
increasing 1.7% in the year to September 2019. historical standards. Coupled with continued
population growth and a significant pipeline
There are signs that economic growth will PER ANNUM OVER THE
of infrastructure projects, economic growth is
1.8%
NEXT FIVE YEARS
1.8%
improve over the next 12 months with recent CPI
forecast to average 2.7% per annum over the
data pointing to a modest uptick. Positive
next five years.
influences going forward are the recent
turnaround in house prices with notable gains
being recorded in the Sydney and Melbourne
1.5% 1.5%
POPULATION GROWTH
AUSTR ALIA GDP GROW TH
0.75% 0.5%
INTEREST RATES
1.6% 5.0%
1.2 4.0
0.8 3.0
2.2% 2.4%
WAGES GROWTH
0.4 2.0
0.0 1.0
5.1% 5.1%
UNEMPLOYMENT RATE
-0.4 0.0
M 15
Ju 16
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De 18
M 18
De 09
M 09
Ju 10
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De 10
M 10
Ju 11
Se 11
De 11
M 11
Ju 12
Se 12
De 12
M 12
Ju 13
Se 13
De 13
M 13
Ju 14
Se 14
De 14
M 14
Ju 15
Se 15
De 15
Ju 19
Se 19
19
-
n-
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c-
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p-
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ar
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ar
ar
ar
ar
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Se
QoQ Growth YoY Growth (RHS)
Source: Colliers International, ABS Source: Deloitte Access Economics, Westpac, Colliers International
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 5
Key Findings
I N FRAST RUCTUR E INVESTMEN T
Australia is currently witnessing an era of transformation and renewal, with an
unprecedented amount of funds being directed to transport infrastructure projects
including new roads, rail, intermodal terminals and an airport.
For the industrial sector, ultimately these projects will The current spate of transport infrastructure investment
shape the location of industrial demand while areas that is set to transform the outlook of the industrial market
were once considered secondary may perhaps become not only for tenants, but also for developers and
prime demand areas. It is estimated that there is $133 investors currently revisiting their investment strategy to
billion worth of transport infrastructure projects under
construction and committed, 65% of which is scheduled
for completion in the next three to five years.
recognise the changing market dynamics created by the
infrastructure investment.
$133bn 65%
ESTIMATED FOR TRANSPORT SCHEDULED FOR
INFRASTRUCTURE COMPLETION WITHIN THE
PROJECTS NEXT THREE TO FIVE YEARS
AUSTR ALIA TR ANSPORT INFR ASTRUC TURE AUSTR ALIA ENGINEERING CONSTRUC TION
25,000 $million
Forecast
$50 billion
ACT Light Rail (Stage 2)
Tonkin Highway
20,000 40
Bruce Highway Cooroy to Curra
SEQIPP
30
Vic Metro Rail Upgrades
15,000
NorthLink WA
20
10,000
Brisbane M12 10
Airport Rail Gateway
Link WA
5,000 Pacific Highway - Woolgoola to Ballina
0
Gold Coast
Jun-11
Dec-11
Jun-17
Jun-13
Jun-19
Jun-12
Dec-13
Jun-14
Jun-15
Jun-16
Dec-17
Jun-18
Dec-18
Jun-10
Dec-12
Dec-14
Dec-15
Dec-16
Dec-10
Jun-01
Dec-01
Jun-99
Jun-07
Dec-99
Jun-03
Dec-07
Jun-02
Dec-03
Jun-05
Dec-02
Jun-04
Jun-06
Jun-08
Dec-08
Jun-09
Dec-09
Jun-00
Dec-04
Dec-05
Dec-06
Dec-00
Legacy Way
Regional Rail Link
WestConnex
0 Relian ce Rail
SW Rail Link
Value of Work Done Value of Work Commenced Value of Work Yet to be Done
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
New South Wales Victoria Queensland Western Australia Australian Capital Territory Multiple states
Source: Colliers International, ABS
Source: Deloitte Access Economics * selected sectors include roads, railways, bridges, and harbours
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 6
Key Findings
I N FRAST RUCTUR E INVESTMEN T
AUSTR ALIA'S LOGISTIC PERFORMANCE INDEX PORT CONTAINER MOVEMENTS (TEUS)
SCORECARD (OUT OF 5)
AUSTR ALIA INFR ASTRUC TURE PROJEC TS
3 million -3.2%
CUSTO MS INFR ASTRU C TU RE
Metronet
$5.2 billion
2024 Cross River Rail Brisbane Airport – New 3.87 3.97 2
Rail $6.9 billion Parallel Runway EFFICIENCY OF THE QUALITY OF TR ADE AND
TR ANSPORT RELATED
1 2.66 2.57
2024 $1.3 billion CLEAR ANCE PROCESS
NorthLink WA INFR ASTRUCTURE
Rail 2020 (i.e., speed, simplicity and
$1.1 billion predictability of formalities) (e.g., ports, railroads, roads, 0
Airport
2019 Bruce Highway Upgrade by border control agencies, information technology)
Road $1.7 billion Gateway North Upgrade including customs Sydney
2023+ $1.0 billion
Perth Airport Upgrade
Road 2024+
$1.0 billion
Road
2020
Airport
QLD -1.5%
INTERN ATIO N A L LO GISTICS 3 million
WA CO M PE TEN CE
SHIPM ENTS
3.25 3.71 2
3.01 2.97
Northern Connector GlobeLink SA EASE OF ARR ANGING COMPETENCE AND
1
COMPETITIVELY PRICED QUALITY OF LOGISTICS
$0.8 billion —
SHIPMENTS SERVICES
2020 2026+ NSW Inland Rail Moorebank Intermodal (e.g., transport operators, 0
Road Road $10 billion Terminal customs brokers)
2030 $1.9 billion
Melbourne
Rail 2025
Rail
Melbourne Metro Rail Project North East Link VIC WestConnex
$11.0 billion $15.8 billion $16.8 billion Sydney Metro West
2025 2027 2023 $10.4 billion TIM ELIN ES S TR ACKIN G & TR ACIN G
3.98 3.82
Rail Road Road 2028
Rail 3 million -4.9%
West Gate Tunnel Project Melbourne Tullamarine Airport Rail link Sydney Metro City &
$6.7 billion $10.0 billion Southwest Pacific Highway Upgrade TIMELINESS OF ABILITY TO TR ACK AND 2
2022 2027+ $12 billion $4.9 billion SHIPMENTS TR ACE CONSIGNMENTS
Road Rail 2024 2020 in reaching destination
Rail Road within the scheduled or 1
Level Crossing Removal expected delivery time
Western Sydney Airport M12 Motorway 1.38 1.31
$6.6 billion
$5.3 billion $1.8 billion 0
2025
Rail 2026 2026
Airport Road Brisbane
NorthConnex
$3 billion
LPI SCO RE 2019 2020
2020
Road
3.75
LPI SCORE
Source: World Bank
COST EXPECTED COMPLETION TYPE Source: NSW Ports, Port of Melbourne and Port
of Brisbane
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 7
Key Findings
I N V ESTME NT VOLUM ES
Against a backdrop of strong fundamentals, demand for industrial
2019 I N V ES T M E N T VO LU M E % BY S TAT E
and logistics assets remains significant.
The strong flow of capital into the Australian industrial Although sales volumes have increased from the level
sector now stems from a diverse range of investor types recorded in 2018, fewer assets have been brought to
including local institutions, private investors and offshore market. In 2019, 220 assets traded, well below the 252
institutional investors. This strong demand, however, is recorded in 2018 and the 353 recorded in the last volume QLD
WA
26.6%
being restrained by fewer assets being brought to the peak in 2016. As institutional investors continue to grow
market and has been further exacerbated by a lack of
large portfolio opportunities consisting of four or more
their ownership of industrial assets within the logistics
sector, the availability of assets (particularly high-quality
3.1%
assets being offered. assets) for sale has diminished. To grow their portfolios, SA NSW
In the 2019 calendar year, investment volumes within the
industrial groups are likely to seek alternative strategies
in 2020 such as a build-to-core strategy, which has seen 6.6% 37.7%
industrial sector totalled $5.7 billion, well above the $5.0
land values increase at a significant rate.
billion recorded in the 2018 calendar year. The East Coast VIC
capital cities of Sydney, Melbourne and Brisbane captured Prime core assets with long WALEs where security of
over 85% of this activity as institutions look to capitalise on tenure and quality of covenant are sound remain the asset 24.0%
strong leasing fundamentals and a favourable outlook for of choice for investors as they offer certainty of cash flow.
further yield compression in these cities. Alternatively, investors are becoming less risk adverse and
are willing to acquire assets with more elevated leasing
and vacancy risk. Source: Colliers International
I N D U S T R I A L I N V ES T M EN T VO LU M ES ($ 5 M I L+) I N D U S T R I A L I N V ES T M E N T BY N U M B E R ($5 MIL+)
400
$9.0 billions
8.0
7.0 300
6.0
5.0
200
4.0
3.0
2.0 100
1.0
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0
NSW QLD VIC SA WA Various/Other 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Colliers International Source: Colliers International
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 8
Key Findings
PO RT FOL IO SALES
TOTAL 2019 INDUSTRIAL PORTFOLIO
Given the difficulty in obtaining core and core plus assets on their own, TRANSACTIONS
portfolio transactions have been highly sought after. $1.8bn Up from
1.2bn
Portfolios provide asset hungry investors with instant scale and as a
result, investors have demonstrated a willingness to pay a premium
EASTERN CREEK NSW for portfolios. Industrial portfolio transactions in 2019 amounted to
approximately $1.8 billion, up from the $1.2 billion recorded in 2018.
Sale Price: $90.5m Total Size: 36,404sqm
Vendor: Confidential MAJOR PORTFOLIOS SOLD IN 2019 INCLUDE:
Purchaser: AMP Capital on behalf of Swiss Re
Sold by: Colliers International
AMP Capital Portfolio
Three Sydney assets (Kingsgrove, Villawood and
Blacktown) were purchased by GPT for $105 million
on a combined yield of 5.6%.
Charter Hall Portfolio
Investec acquired three assets for a collective
total of $81 million in September 2019. The assets,
located in Perth, Adelaide and Darwin, were
purchased on a combined initial yield of 7.3%.
Arnotts Portfolio
Three assets brought to the market by KKR following
their acquisition of the Campbell Soup business.
The Brisbane and Adelaide assets were acquired
by the Centuria Industrial REIT for $236.2 million
while Charter Hall purchased the Sydney facility for
$397.8 million.
Greenlit Brands Portfolio
Two Sydney assets offered by Greenlit Brands. Both
Sale and Leaseback Activity assets were then sold individually to AMP and Logos
Dominated by several large transactions towards the leaseback provides corporates with an opportunity what was the largest industrial transaction for 2019. for a collective total of $171.8 million.
end of 2019, sale and leaseback activity was strong to release capital that is tied up on the balance sheet The properties were acquired on a sale and leaseback
over the past year with several corporates capitalising and reinvest the funds back into their business agreement with an average lease expiry of 32 years. Blackstone Cold Storage Portfolio
on favourable pricing metrics. In 2019, investment or reduce debt. Five temperature-controlled warehouses (across
Other sale and leaseback transactions include 1 Brisbane, Perth and Adelaide) sold to Emergent
volumes stemming from sale and leasebacks totalled
Sale and leaseback acquisitions in 2019 were Eucalyptus Place, Eastern Creek which sold to AMP Cold for $345 million.
just over $1.1 billion, representing 20% of investment
headlined by the Arnott’s Portfolio (assets located Capital (on behalf of Swiss Re) for $90.5 million and
volumes over the period.
in Sydney, Brisbane and Adelaide) which sold for 2-4 Harvey Road, Kings Park sold to LOGOS for $81.3
Increased corporate M&A activity is fuelling this a collective total of $635.1 million. The Centuria million. Earlier in 2019, 95 Greens Road, Dandenong
growth as a number of groups acquire businesses Industrial REIT acquired the Brisbane and Adelaide South was sold to Charter Hall for $100 million on
and then split out the real estate components assets for $236.2 million while Charter Hall a sale and leaseback to Viridian Glass. The sale
through a sale and leaseback arrangement. While it purchased the Sydney facility for $397.8 million in followed Crescent Capital Partners acquisition of the
represents a way of unlocking acquisitions, a sale and Viridian Glass business from CSR in 2018.
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 9
Key Findings
BU YE R PRO F ILE
Domestic institutions were the largest buyer group in 2019, accounting for 48.0%
of investment volumes in 2019.
Notable domestic institutions who were active in 2019 Offshore investors remain active in the market with offshore acquisition in 2019 was ESR’s equity buyout of OFFSHORE INVESTMENT VOLUMES
TOTALLED
$1.6bn
include Charter Hall, Centuria, LOGOS, GPT and Fife investment volumes for the year totalling almost $1.6 the Propertylink industrial portfolio in early 2019 for $723
Capital. Institutional owners with development capability billion, underpinned by groups from Singapore, Europe, million. Other major acquisitions from offshore groups
are increasingly turning their focus to new developments to the US and Hong Kong. However, the offshore value of include DWS (ex Deutsche Asset Management) purchasing
grow their funds under management and as a result supply sales is likely be understated given the sizable levels of a 50% interest in 99 Sandstone Place, Parkinson for
levels are expected to increase further in 2020. offshore capital being deployed via domestic managers $134.2 million.
through capital raisings and joint ventures. The largest
SHARE OF PURCHASER T YPE BY SALES VOLU ME S H A R E O F I N D U S T R I A L S A L ES BY P U R C H A S E R T Y P E
8.5%
China
$17.3m
0.3%
28.6% 48.0%
Hong Kong
$791.2m
16.0% 14.9%
Institution Private Offhsore Other
Source: Colliers International
VO LU M E P R O P O R T I O N S BY S O U R C E O F C A P I TA L
USA
$171.0m
3.4% Offshore
Germany
$134.2m $284.2m
Singapore
Australia
2.7%
5.7%
$4.0bn
71.8%
Domestic
0% 20% 40% 60% 80% 100%
NSW QLD VIC WA SA Various/Other
Source: Colliers International Source: Colliers International
INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 10
Key Findings
Y I EL DS
Industrial yields have shown further compression over the past 12 months
AV E R AG E P R I M E & S ECO N DA RY Y I E L D BY C A P I TA L (DEC 19)
as demand for industrial exposure has outweighed stock for sale.
Average prime industrial yields currently average 5.7% Despite yield metrics continuing to firm, they remain
nationally, representing 40 basis points of firming over attractive in a global context and the spread between the
the past year. The rate of compression in the prime 10-year government bond rate has widened to its highest
market has been most pronounced within the Sydney and level in six years.
Adelaide markets, the latter reflecting increased buyer
Recent yield compression combined with solid rental
appetite given the yield premium when compared to other
growth across most capital cities has resulted in
east coast capital cities.
significant growth in capital values. Nationally, prime
Secondary yields currently average 6.8%, firming 38 capital values have increased 13.8%, over double the 10- BRISBANE
basis points in 2019. The rate of firming has been broadly year average of 6.2%. Sydney and Adelaide led the way
consistent across the capital cities, albeit with Sydney with prime capital values jumping 17.6% and 19.1% over
being the standout performer with firming of 47 basis the 12 months to December 2019. PERTH
points over the 12-month period.
ADELAIDE SYDNEY
AVER AGE NATIONAL CAP R ATE AND PRIME SPRE AD TO 10 YE AR GOV T. BOND R ATE
10.0% 600 MELBOURNE
9.0 500
8.0 400
7.0 300
BRISBANE SYDNEY MELBOURNE
6.0 200
Average Prime 12-month Average Prime 12-month Average Prime 12-month
5.0 100
Yield Compression Yield Compression Yield Compression
5.94% 36bps 4.70% 48bps 5.73% 38bps
4.0 0
14 14 15 15 16 16 17 17 18 18 19 19
n- c- n- c- n- c- n- c- n- c- n- c-
De 05
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Prime - 10 Year Govt. Bond Yield Spread (RHS) Prime Secondary
Average Secondary 12-month Average Secondary 12-month Average Secondary 12-month
Source: Colliers International Yield Compression Yield Compression Yield Compression
P R I M E C A P I TA L VA LU ES BY CAPITAL CIT Y
7.53% 31bps 5.38% 47bps 6.70% 38bps
$3,500 ADELAIDE PERTH
$3,000
$2,500
Average 12-month Average Prime 12-month
$2,000
Prime Yield Compression Yield Compression
$1,500
$1,000
7.44% 59bps 6.90% 20bps
$500 Average 12-month Average Secondary 12-month
$0 Secondary Yield Compression Yield Compression
9.16% 28bps 7.97% 31bps
Ju 06
Ju -05
Ju -08
Ju 09
Ju -13
Ju -11
Ju -07
Ju -17
De 06
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De 12
De 14
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Ju 10
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De 13
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De 07
Ju 12
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Sydney Melbourne Brisbane Perth Adelaide
Source: Colliers International Source: Colliers InternationalINDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 11
Major Transaction Overview
SY D NE Y
With key national industrial drivers remaining strong, the Sydney industrial and logistics
market continued to move from strength to strength off the back of the significant weight of
capital seeking logistics facilities within Sydney.
Key
MAJOR TRANSACTIONS
61 Huntingwood Drive, Huntingwood
Purchased for:
$397.8m
Purchased by: Purchased From:
Charter Hall KKR
Superior Sydney Portfolio
Purchased for:
$105m
Purchased by: Purchased From:
2019 AVERAGE YIELDS 2019 ANNUAL RENT GROWTH AVERAGE CAPITAL VALUES
GPT AMP
TOTAL INVESTMENT VOLUMES IN 2019
$2.0bn 4.70% 5.38% 6.5%
PRIME SECONDARY AVERAGE PRIME AND SECONDARY
$3,350/sqm
FOR PRIME GRADE ASSETS
57-89 Lockwood Road, Erskine Park
Purchased for:
Investment volumes in 2019 measured just over $2.0
billion, largely on par with the levels recorded in 2018.
Despite the average asset value being 40% higher in 2019
The weight of capital flowing into Sydney industrial and
logistics property continues to be sourced from a diverse
range of investors, including offshore capital from the USA,
The average yield for Sydney has been continuously
tightening across the market. Prime yields are currently
averaging 4.70% and secondary yields tightened by 47
$107m
Purchased by: Purchased From:
when compared to 2018, volumes were limited by fewer Canada, Asia and Europe. basis points in 2019 to an average of 5.38%. With rents GPT Private
assets being brought to market. growing at 6.5% on average for 2019, capital values
However, domestic REIT’s have continued to outbid these
for prime grade assets increased 17.6% to $3,350/
With many institutional and private investors choosing to offshore groups as they look to reweight their portfolios
sqm and secondary grade building values grew by
retain their assets as it is too hard to replace this capital and gain further exposure into the logistics sector, with
16.9% to $2,525/sqm.
within the tightly held Sydney market, approximately 62% offshore investors making up 27% of total sale volumes.
of the assets to trade in 2019 have been by corporate We expect the New South Wales industrial & logistics
With key institutional industrial investors all trying to
vendors. This is a trend we expect to continue as these market to continue to remain robust throughout 2020 as
reweight their portfolios to New South Wales, we have
corporate vendors sell their assets on sale and leaseback further major infrastructure projects reach construction
seen all opportunities of scale hotly contested and setting
transactions, divesting of their non-core assets and recycle phase and investors compete aggressively to acquire any
new benchmarks. This was reflected in the sale of the
this capital back within their businesses. opportunity that is presented to them.
AMP Portfolio, a portfolio of three Sydney assets providing
a GLA of more than 50,000 sqm purchased by GPT
for $105 million.INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 12
Major Transaction Overview
M EL BOU RNE
Investment demand continues to be very strong across the Melbourne industrial market,
however, stock remains tightly held and as a result the majority of transaction activity in 2019
has stemmed from secondary assets or turn-key developments.
Key
MAJOR TRANSACTIONS
ConnectWest Industrial Estate, Truganina
Purchased for:
$71m
Purchased by: Purchased From:
LOGOS Goodman
95 Greens Road, Dandenong South
Purchased for:
$100m
Purchased by: Purchased From:
2019 AVERAGE YIELDS 2019 ANNUAL RENT GROWTH AVERAGE CAPITAL VALUES
Charter Hall Crescent Capital Partners
TOTAL INVESTMENT VOLUMES IN 2019
$1.3bn 5.73% 6.70% 5.1%
PRIME SECONDARY AVERAGE PRIME AND SECONDARY
$1,993/sqm
FOR PRIME GRADE ASSETS
3 Maker Place, Truganina
Purchased for:
Investment demand continues to be very strong across
the Melbourne industrial market, however, stock remains
tightly held and as a result the majority of transaction
Similar to broader trends, the number of industrial assets
sold in 2019 declined 7.2% from 2018 and reflects the
continued tightening of the industrial market in Melbourne
The confluence of few assets for sale and significant
levels of demand has led to further compression in yields,
which combined with a pick-up in rental growth has driven
$40m
Purchased by Purchased From:
activity in 2019 has stemmed from secondary assets as owners opt to hold onto their assets. Offshore capital values higher. As at December 2019, prime yields Growthpoint Frasers Property
or turn-key developments. Total investment volumes in demand was strong in Melbourne, representing 44.0% of in Melbourne averaged 5.73% while secondary yields are
Melbourne for 2019 totalled approximately $1.3 billion, investment volumes over the period, underpinned by the higher at 6.70%, both of which firmed 38 basis points in
moderately above the level recorded in 2018. ESR’s equity buyout of the Propertylink portfolio. 2019. With rents growing at 3.6% in prime and 6.5% in
the secondary market on average, capital values for prime
Investment sales have been broadly spread, however, The lack of built industrial investment product for sale
grade assets increased 12.1% to $1,993/sqm and secondary
skewed towards Melbourne’s South East and West, in Melbourne is leading to solid demand for land as local
grade building values grew by 13.5% to $1,197/sqm.
collectively accounting for 55% of investment volumes in REITs and developers look to replenish their land banks in
2019. Notably, this result was led by Charter Hall’s (Charter core locations. More recently, this was evidenced by ISPT’s The outlook for the Melbourne industrial market in 2020
Hall Prime Industrial Fund) acquisition of 95 Greens Road, $23.1 million purchase of 40 hectares of land in Truganina is favourable as Melbourne offers an attractive alternative
Dandenong South on a sale and leaseback arrangement and followed their earlier acquisition of 30 hectares in to other Eastern Seaboard markets given the availability of
to Veridian Glass for $100 million. Other notable sales to Altona North for $60 million. land and relative pricing.
occur include 182-198 Maidstone Street, Altona which sold
to Cache Logistics Trust for $41.2 million and highlights the
resilient demand from offshore groups.INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 13
Major Transaction Overview
B RISBANE
Almost $30 billion in committed or under construction
infrastructure projects have been a catalyst for the growth of the
industrial sector in Queensland in 2019.
Key
MAJOR TRANSACTIONS
61 Pritchard Road, Virginia
Purchased for:
$211.8m
Purchased by: Purchased From:
Centuria KKR
99 Sandstone Place, Parkinson
Purchased 50% share for:
$134.2m
Purchased by: Purchased From:
2019 AVERAGE YIELDS 2019 ANNUAL RENT GROWTH AVERAGE CAPITAL VALUES
DWS Frasers Property
TOTAL INVESTMENT VOLUMES IN 2019
$1.4bn 5.94% 7.53% 1.3%
PRIME SECONDARY AVERAGE PRIME AND SECONDARY
$1,874/sqm
FOR PRIME GRADE ASSETS
40 Schneider Road, Eagle Farm
Purchased for:
Coupled with sustained population growth and the shift in
industrial activity from traditional manufacturing activity to
construction, transport, logistics and distribution have also
Industrial land values also increased in the Brisbane’s
industrial market as institutional investors have moved
to purchase the next wave of englobo sites and land
Major sales include four $100 million-plus sites this year,
which show the strength of the Queensland industrial
market, led by Centuria's acquisition of the Arnotts facility
$102.5m
Purchased by: Purchased From:
contributed to an uplift in investment levels in the region. absorption continues. In this regard, a 23-hectare englobo in Virginia for $211.8 million. Charter Hall Queensland Treasury Corporation
parcel was acquired by ISPT for $59.8 million in the largest
Transaction volumes rose considerably throughout last In 2020, the industrial sector is expected to continue
transaction of englobo land in Queensland in 2019.
year. In this regard, over $1.4 billion changed hands in improving as the employment market is forecast to
the industrial investment market for properties over Net face rents for prime grade assets are expected to strengthen due to the business investment recovery on the
$5 million including completed and pending sales. This slightly increase in 2020 whilst rents for secondary back of solid population growth and monetary and fiscal
figure contrasts with the more modest total of over $1.0 grade will remain flat. Prime and secondary yields are stimulus package.
billion in 2018. also expected to tighten in every precinct in Brisbane.
Another indication of the improvement of the investment
Institutional investors played an active role in the
market relate to the rise in prime capital values observed
investment market as evidenced by their 89% market
last year, up 7.9% to $1,874/sqm. However, incentives for
share (by volume) in the over $10 million sales category
prime and secondary grade assets are forecast to remain
whereas private investors accounted for the remaining
unchanged in 2020.
total amount of sales.INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 14
Major Transaction Overview
A DE L AID E
The abolishment of stamp duty for commercial transactions continues to positively
impact the Adelaide industrial market with several large investment sales recorded in
the final quarter of 2019.
Key
MAJOR TRANSACTIONS
Port Adelaide Distribution Centre, Gillman
Purchased for:
$80m
Purchased by: Purchased from:
Quintessential Stockland
46-70 Grand Trunkway, Gillman
Purchased for:
$25.5m
Purchased by: Purchased from:
2019 AVERAGE YIELDS 2019 ANNUAL RENT GROWTH AVERAGE CAPITAL VALUES
Investec Charter Hall
TOTAL INVESTMENT VOLUMES IN 2019
$360m 7.44% 9.13% 8.6%
PRIME SECONDARY AVERAGE PRIME AND SECONDARY
$1,410/sqm
FOR PRIME GRADE ASSETS
21-41 Galway Avenue, Marleston
Purchased for:
In 2019, industrial investment volumes measured $360
million and represents its highest annual total on record.
With the Adelaide market offering higher yields when
compared to east coast industrial markets and an
improved economic outlook due to investments in defence,
28 basis points in 2019 to average 9.13% and reflects a
clear preference for prime stock, particularly fully leased
assets with strong lease covenants.
$24.4m
Purchased by: Purchased from:
The strong result for 2019 largely stemmed from the sale Centuria KKR
mining, energy and infrastructure, institutional owners
of the Port Adelaide Distribution Centre at Gillman which Investment demand is expected to remain strong over the
have increased their presence in the Adelaide market.
was acquired by Quintessential Equity for $80 million. coming year, with rate cuts and increased capital chasing
Institutional owners have accounted for 70% of sales
Providing a total NLA of approximately 167,500 sqm yield improving the investment outlook. However, demand
volumes in 2019, compared to 60% in 2018.
across 12 freestanding buildings, the asset was sold on a is expected to remain two tired with prime assets to
yield of 10.85% from Stockland. Elsewhere, Charter Hall This renewed interest has resulted in high levels of yield remain highly sought after.
purchased the GMH site at Gepps Cross for $35.1 million compression with prime yields in 2019 tightening by 59
while the Centuria Industrial REIT acquired the Arnotts basis points to average 7.44% and represents the highest
facility at Marleston for $24.4 million as part of a portfolio level of firming of all capital cities. Whilst still strong, yield
of two assets with the other located in Brisbane. compression in the secondary market totalledINDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 15
Major Transaction Overview
PE RTH
After a positive start to the 2019 calendar year, investment activity within the Perth industrial
market was more subdued in the second half of 2019. Over the year, industrial investment
volumes measured $167 million across 13 sales.
Key
MAJOR TRANSACTIONS
103 Welshpool Road, Welshpool
Purchased for:
$26.5m
Purchased by: Purchased from:
Investec Charter Hall
58 Boom Street, Gnangara
Purchased for:
$19.9m
Purchased by: Purchased from:
2019 AVERAGE YIELDS 2019 ANNUAL RENT GROWTH AVERAGE CAPITAL VALUES
Lendlease Linc Properties
TOTAL INVESTMENT VOLUMES IN 2019
$167m 6.90% 7.97% 1.1%
PRIME SECONDARY AVERAGE PRIME AND SECONDARY
$1,147/sqm
FOR PRIME GRADE ASSETS
16-18 Baile Road, Canning Vale
Purchased for:
Modern industrial facilities that are well leased and well
located with strong cash flows are assets that continue
to be sought by investors, despite challenges in the
Perth’s comparatively smaller industrial market remains
dominated by local high net worth individuals; however,
institutional interest is increasing given the upside
2019. Alternatively, yields in the secondary market range
between 7.25% and 8.50% with 31 basis points of firming
being registered in 2019. The stronger rate of firming in
$18.1m
Purchased by: Purchased from:
leasing market. opportunities. Offshore investment has been limited when the secondary market can be attributed to opportunistic Centuria Benchmark Properties
compared to the east coast capital cities with major foreign investors seeking value add opportunities.
The low investment volumes for 2019 can be attributed to
purchases in recent years stemming from national portfolio
the institutional-grade segment which was relatively low, These yields, in comparison to bonds and yields in other
acquisitions with combined assets from several cities,
with only seven assets greater than $10 million changing Australian cities, remain attractive to investors and as
rather than individual asset acquisitions.
hands in 2019. The largest sale in 2019 was 103 Welshpool a result, Colliers maintains a projection of further yield
Road, Welshpool which sold as part of a portfolio to While rents and value deterioration has largely impacted compression in 2020.
Investec Australia Property Fund from the Charter Hall the smaller end of the market, capital values of larger
Prime Industrial Fund. The price attributable to this asset investment stock, particularly institutional-grade assets,
$26.5 million and represents a capital value of $5,246/sqm. continued to be assisted by yield compression during 2019.
Generally, prime yields in Perth range between 6.25% and
7.50% with compression of 20 basis points recorded inINDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 16
New Zealand Sector Overview
G LOBALLY, M ANY FAVOUR T H E DEF EN S I VE C H A R AC T ER I ST I C S A ND PO S I T I V E A S PEC TS O F T H E
I N D UST RIAL SECTOR , AND N EW Z EA L A N D I S N O DI FF ER E NT.
Why investing in NZ INDUSTRIAL SECTOR ACCOUNTS FOR 1/5 OF
NEW ZEALANDS
MAKES SENSE
from an offshore perspective: $300bn NZD
Economy
At the heart of the industrial sector, goods-producing industries such as manufacturing and construction now account
for around one-fifth of New Zealand’s NZD $300 billion economy, according to Statistics New Zealand. However, this
is boosted by other services such as transport, warehousing and postal services, an industry showing another year of
growth. Additional depth comes from rising public sector spend with the Government’s recent NZD$12 billion infrastructure
package expected to provide a significant boost to industrial fundamentals over coming years.
From a sales perspective, the industrial sector accounts for In another joint effort, but still under Overseas Investment Office
A BENIGN TAX POSITIVE NET approximately 50% of all commercial and industrial sales activity consideration, Stride Property Group, one of New Zealand’s
STRUCTURE MIGRATION annually in New Zealand and just under 40% of the total value. The
variance in percentages reflects the typically lower value size of the
largest property companies launched a joint venture with a group
of international institutional investors, through a special purpose
and limited property and demographic profiles industrial market and the higher turnover represents both investors vehicle, and advised by J.P. Morgan Asset Management (JPMAM).
associated taxes: and owner-occupiers. Stride will contribute 12 properties with JPMAM initially contributing
$70 million with a commitment to contribute another $155 million of
While activity has been strong in the sub-NZD$5 million market,
equity in the first two years for future acquisitions and developments.
2019 has also been a stellar year for high-value industrial property
L I M I T E D C A P I TA L G A I N S TA X This indicates funding for an additional $190 million will be provided
transactions in New Zealand.
over the short term, potentially taking the portfolio to approximately
N O S TA M P D U T Y O R C O N V E YA N C E D U T Y
One standout transaction was Visy’s manufacturing and distribution NZD$550 million in value.
facility in Hamilton which sold to a private local investor for more
Supportive investment for foreign and local ownership While these two standout deals highlight the growing depth of the
than NZD$70 million. There was significant interest, a high number
sector and commitment for additional purchasing from listed and
of bidders and a strong yield that has arguably resulted in a
offshore funds, industrial properties have also proven popular with
Favourable current debt to yield spreads recalibration of the industrial market, especially in main centres and
syndication companies as well. A review of the types of purchasers
the NZD$15-35 million price bracket.
seeking industrial properties NZD$20 million and above shows
Transparent real estate sector: indefensibility of title Further, rising rents, limited incentives and pent-up investor sizeable growth in this space with Augusta and PMG Property in
demand are driving average prime yields down, now typically particular. Goodman Property trust has also been active.
Favourable long-term economic indicators ranging between 5.0% and 6.5% in Auckland, but some are below
According to responses to the latest Colliers International
5%. Purchaser interest is growing for well-positioned, add-value
Commercial Property Investor Confidence survey, there should be
secondary premises as well.
Solid, long-term total returns with relatively low volatility another solid year of activity in the industrial sector ahead. A net
Another industrial sale for more than $70 million that concluded positive 46% (optimists minus pessimists) of respondents expect
A stable political regulatory environment in 2019 was the purchase by LOGOS and AustralianSuper of the investment conditions to improve over the next 12 months. This is
14 hectares of industrial land at 11 Puaki Drive in Wiri, Manukau one of the highest results in the past 10 years.
Auckland. LOGOS bought 10 ha of neighbouring land in mid-2018.
Company announcements suggest a $500 million prime logistics
estate will be created, offering 120,000 sqm of industrial space.INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 17
Feature Thought Leadership
I N D UST RIAL – COM ING TO A R E TA I L C EN T R E N EA R YO U?
Driven by changing consumer preferences and a
challenging brick-and-mortar retail environment,
industrial occupiers are increasingly seeking
infill locations to solve their last-mile
logistics function.
As a result, the conversion of retail centres for industrial use is likely to gather
momentum in Australia, mirroring the experience of the US. While this trend is yet
to occur in Australia, it follows Dexus’ recent purchase of the Homemaker Prospect
Large Format Centre in Sydney with their intention to convert it to industrial
over the short to medium term. Once complete, this would be the first of its kind
in Australia and may represent a catalyst for further conversions going forward
as industrial groups look to grow their funds under management in a period of
diminished asset availability for sale.
Demand for the conversion of retail space to industrial is being aided by
fundamentals within each industry. On one hand, demand for industrial space
across Australia remains robust, underpinned by e-commerce and logistics
providers off the back of significant growth in online retail which has increased
demand for the delivery of goods. Alternatively, the retail sector is experiencing
some structural changes while traditional retailers continue to embrace the
omnichannel phenomenon which has had positive flow on effects to the
industrial sector.
The repurposing of retail centres has been an apparent trend in the US for almost
five years with Amazon being the pioneer in this space. Since 2016, it is estimated
that nearly 800,000 sqm of retail space has been converted for industrial use,
providing over one million sqm of industrial floorspace in tightly held infill locations.
Randall Park Mall, located in Ohio was once the world’s largest shopping centre,
however, it was repurposed in 2019 into an 80,000 sqm Amazon fulfilment centre.
Whilst the Randall Park Mall was demolished, elsewhere in the US, existing retail
centres are being retrofitted for industrial use including a former Toys ‘R’ Us store
in Milwaukee now being used for a remanufacturer of car parts while several
Sam’s Club stores are being used as distribution centres.
SINCE 2016 IT'S ESTIMATED THAT
800,000sqm
OF RETAIL SPACE HAS BEEN
CONVERTED FOR INDUSTRIAL USE IN
THE UNITED STATESINDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 18
Feature Thought Leadership
T H E CASE FOR AUSTR ALIA
AUSTRALIAN CONSUMER
DEMAND FOR NEXT DAY
DELIVERY
MAIN CAUSES FOR THIS DISRUPTION: The Australian retail sector continues to navigate through a disruptive period. Traditional models of
retailing no longer meet consumer expectations and retailers are being urged to make changes to GROWING BY
their strategies. While brick-and-mortar stores remain an essential part of the retail landscape, online
retail continues to gain market share and as a result the conversion of retail space is expected to 31.7%
gather momentum as institutions increasingly seek opportunities outside of the box to grow their funds
Traditional models of retailing are under management.
no longer meeting Highlighted by several recent capital raisings including ability to provide scale in suitable locations. In addition, the centres as opposed to on the periphery of the city would
CONSUMER the Charter Hall Prime Industrial Fund’s $725 million costs of conversion are significantly lower for large format support the flexibility required for last mile delivery in
raising, institutions are increasing their asset allocation centres as they are typically more adaptable for industrial the local market.
EXPECTATIONS towards industrial property and as a result, will look at use as they are of a compatible height, provide doors and
Perhaps the biggest hurdle to this trend taking off in
alternative strategies to retain and attract tenants within docks and have adequate car parking provisions. Similarly,
Australia is the approval process. While in the bulk of cases
and to their portfolio. Alternative strategies to grow funds the costs for demolition are lower, making them more
warehouse and distribution centres are permissible under
under management have been further exacerbated by feasible for industrial development.
the zoning applicable to large format centres, a separate
fewer assets being brought to market with just 220
In the case of the Homemaker Prospect Large Format development application is likely required which would
industrial assets trading in 2019, well below the 252
Centre, the site provides a total area of 65,500 sqm within result in a community consultation process. Given the
LACK OF LAND recorded in 2018.
a centrally located precinct with easy access to the major likelihood of increased truck volumes and earlier and later
in middle and inner ring Given the lack of available land in middle and inner ring road networks of the Great Western Highway and M4 opening times, this is likely to generate some angst among
locations locations, industrial groups in Australia are likely to Motorway. Once converted to industrial, the site could residents and businesses.
follow the US and look to secure retail centres which provide approximately 35,000 sqm of warehouse space
Going forward, each site would need to be assessed on
can be reused for industrial space. Looking at Sydney, and is likely to generate solid demand from logistics users
its own merits to determine if a conversion is feasible and
for example, the industrial vacancy rate in inner ring as the surrounding industrial vacancy rate is circa 3.5%.
possible, taking into consideration a number of factors
locations is currently sub 4%. However, these areas have
The catalyst for this trend becoming more apparent in including planning parameters, proximity to key arterial
been subject to heightened tenant demand, given their
Australia will be the continued growth in online retail and roads, site and centre configuration, adaptive reuse
immediacy to the surrounding population.
CONTINUED retailers desire to satisfy consumer requirements with opportunities (or whether the centre needs to be
From a logistics perspective, the benefits of positioning regards to delivery times. Given large format centres demolished) and construction costs. Location will be the
GROWTH products close to demand can translate into significant are typically located in prime infill locations with good most significant factor in groups assessing whether the
in online retail and retailers savings in last-mile transportation costs usually accounting proximity to major road networks and surrounding a large opportunity is feasible as this will underpin tenant demand
desire to satisfy consumer for the largest portion of overall supply chain cost. For population, they are well suited for use as a distribution for industrial use.
requirements companies, being close to customers represents greater centre. Online shoppers increasingly expect faster delivery
Despite growing in excess of 30% per annum in recent
responsiveness and increased service level, which is the times with next day deliveries growing by 31.7% over
years, online retail’s share of the total retail expenditure
aim of a customer centric offering. The benefit of retail the past year and as a result, retailers are responding
pool in Australia remains minute, only representing
conversion for industrial owners and developers is that through advancements to their supply chains to gain a
6.6% of total sales. With the UK and parts of Asia having
they receive a holding income while development and competitive edge.
penetration rates above 20%, the scope for further growth
conversion plans are made for the site, which is a major
Demand for distribution centres in infill locations is being in Australia is significant and will only increase the demand
benefit over buying raw land for development.
driven by the need to reduce transport costs which for well-located industrial space to assist online retailers in
Unlike the US, demand for retail centres for conversion is can account for up to 50% of the overall supply chain satisfying consumer needs of quicker delivery times. The
likely to stem from large format centres rather than higher costs. For the bulk of online and omnichannel retailers, conversion of retail space, therefore, represents a viable
density shopping centres given their low site coverage and having smaller distribution centres located closer to city and suitable way to achieve this.INDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 19
Investment Outlook
F U N DAME NTALS R EM AIN FAVO UR A BLE
Economic conditions are expected to improve
GDP Forecast Growth Rate
by Country 2019‑2024
2.0%
OECD
Australia’s political and economic
STABILITY AND DEFENSIVE
nature of industrial property will remain key lures for offshore groups
2.7%
AUSTR ALIA
1.8%
U N I T E D S TAT E S
0.6%
J A PA N
1.4%
E U R OZO N E
Fundamentals remain favourable heading into 2020 for the Australian industrial property market, buoyed
by a significant pipeline of transport infrastructure, high levels of population growth and continued
demand from the e-commerce sector. More broadly, economic conditions are expected to improve and as
a result there will be positive flow on effects to the industrial market.
1.2%
UNITED KINGDOM
5.6%
CHINA
6.8%
INDIA
2.4%
NEW ZEAL AND
Buyer demand for industrial property in Australia is cashing out to institutions. Offshore groups are expected to
expected to accelerate in 2020, driven by recent capital remain active, particularly from Asia and Europe, however, Source: Deloitte Access Economics
raisings and institutions increasingly reweighting their focussed on strategic partnerships and joint ventures as
asset allocation towards industrial property. However, they look to capitalise on local market expertise. Despite
buying opportunities are expected to remain scarce as global headwinds, Australia’s political and economic
institutions increasingly choose to hold onto their assets stability and the defensive nature of industrial property will
and capitalise on a period of solid capital appreciation remain key lures for offshore groups. Population Growth Forecast by
and rental growth. Against a backdrop of limited buying
opportunities, we expect institutions will increasingly seek
The biggest challenge for groups in 2020 will be achieving Country/Region 2019‑2024
scale and as a result, portfolios will become increasingly
opportunities outside of the box to grow their funds under 2.0
favoured in 2020 and will attract a premium as they offer
management and will include alternative strategies such
both scale and diversity by geography and tenant mix. 1.6%
Australia
as sale and leaseback, asset swaps, alternative use site
acquisitions, land development, strategic partnerships and The long-standing reduced cost of debt and the current 1.5 1.3%
India
joint ventures. low levels of the Australian bond yield are forecast to
continue to drive further yield compression into 2020,
1.0%
World
Given the significant weight of capital seeking to enter the
sector, we expect that industrial assets brought to market
albeit under the rate recorded over the past 12 months. 1.0 0.7%
in 2020 will continue to be met with strong interest from
While industrial yields are currently at record low levels, Hong Kong
0.5%
a variety of buyer types, headlined by local institutions off
the average spread between industrial property yields United States 0.4% 0.3%
the back of recent capital raisings by REITs and unlisted
and 10-year government bond yields have increased to 0.5 0.2% 0.1%
OECD
Advanced
their highest level since early 2013 with a current spread -0.4%
China Economies
funds, many of which were oversubscribed. Lower interest Eurozone
of 445 basis points. Outside of financial market shocks, Japan
rates and sustained capital appreciation will encourage 0.0
Australian industrial assets will maintain favour with
private investors to become more active in 2020, many
investors in 2020.
of which have sat on the sidelines in recent years after
-0.5
Source: IMFINDUSTRIAL INVESTMENT REVIEW | ANZ Introduction Key Findings Major Transaction Overview NZ Investment Market The Australian Industrial Property Difference Detailed Transaction List Team & Authors A CAPITAL MARKETS PUBLICATION | 20
Valuation Outlook
I N D USTRIA L AND LOG ISTICS CO N T I N UES TO BE T H E H OT T I C KE T I T E M
We have continued to see downward pressure on
investment hurdles throughout 2019…
326 AND 340 THYNNE ROAD
MORNINGSIDE, QLD
25 to50
Sale Price: $41m Total Size: 16,979sqm
Vendor: Private Client
Purchaser: Private Client
Basis points Sold by: Colliers International
TIGHTENING ACROSS PRIME INDUSTRIAL YIELDS IS ANTICIPATED OVER THE NEXT 12 MONTHS
The industrial and logistics sector continues to be the hot ticket item, with strong sentiment very much
the result of three key attributes; integration, innovation and adaptability. This has become more apparent
in recent years with e-commerce demand and the development of a complex supply chain that can fulfil
this demand. As this sector continues to grow so too will the positive spill over effects on the industrial
market. That being said, e-commerce sales growth does not translate into a one-for-one increase in
industrial space, however it will certainly be a contributing factor in pushing demand for industrial
space in Australia.
Throughout 2019 we witnessed continued yield We are now seeing a “portfolio premium” being achieved
compression and rental growth across core markets along as institutional owners seek out scale of both land and
the eastern seaboard of Australia, and this sentiment completed product.
is expected to continue well into 2020 with continued
From a valuation and investment perspective we have
supply constraints creating demand for new stock. This
continued to see downward pressure on investment
is particularly evident in Sydney’s outer west and south-
hurdles throughout 2019. This has resulted in a stronger
west precincts, as well as in Melbourne’s south-east and
focus on valuation methodologies, and the integrity of
western precincts, whereby both offshore and domestics
inputs and assumptions within the Discounted Cash Flow
REIT’s have been very active.
analysis (DCF), with a more pertinent focus from investors
Many of the major institutional owners have reported some over sustainable returns throughout the chosen investment
of the highest occupancy rates in years, with strong take- horizon, terminal values and terminal capitalisation rates.
up levels and reduced vacancy. This is also evident for the
Looking ahead, we envisage similar market sentiment
major owner’s speculative development pipeline where
over the next 12 months and anticipate a further 25 to
they are seeing similar trends. The boost in speculative
50 basis point tightening across prime industrial yields.
development appears to be pushed along by the transport
The low interest rate environment, yield spread to bonds,
and logistics sector which accounted for approximately
solid capital inflows nationally, healthy depth of market
60% of new take-up over the past three years and has
participants both locally and internationally, record
been further driven by demand from logistics occupiers
infrastructure spending and a rising e-commerce sector,
trying to fulfil their mandates for 3PL contract space. THE TRANSPORT AND LOGISTICS SECTOR ACCOUNTS FOR
will be integral in maintaining positive market sentiment.
60%
OF NEW TAKE-UP
Furthermore, the current sentiment for large industrial Finally, it is the ability to adapt to the ever-changing needs OVER THE PAST
land holdings is still at an historic high, with a strong of its operators, occupiers and the consumers that will THREE YEARS
appetite for scale. Once upon a time there was a discount continue to drive the industrial sector forward.
warranted for such scale, today it is the opposite.You can also read
