Strong market fundamentals lead to 30 per cent rise in investment sales volumes.
Investment activity has surged to produce a $1 billion result in the first half of 2014, up from $661 million recorded in second half of 2013, according to the latest Industrial Research and Forecast Report First Half 2014 by Colliers International.
Managing director of Industrial at Colliers International Malcom Tyson says the current levels of investment in Australian industrial property look set to continue over the near term.
"Investors are accommodating a higher share of industrial property in their portfolios, because this asset class is delivering competitive returns that are based on stable income streams, with solid growth prospects. Strong covenants supported by reputable tenants on long-term leases are providing industrial investors with high levels of comfort.
"The competition amongst the buyer groups comprising institutions, private persons, occupiers/developers and syndicators is expected to intensify on account of the industrial property's key strengths, including:
Market-leading total returns. The relatively low levels CAPEX required for upgrades. Industrial facilities functional longevity.
The 'land-rich' nature of industrial property, which provides redevelopment opportunities for conversion into other uses such as residential or mixed use.
"Institutions continue to dominate the industrial property market, accounting for 71.9 per cent of all purchases this year to date," Mr Tyson said.
"This figure is up from the 2013 full year result of 58.8 per cent, with institutions expected to continue to represent the single largest investment group over the near to medium term.
"Institutions have invested over $1.7 billion in Australian industrial property over the 12 month period to March 2014.
"Charter Hall accounted for 28 per cent of total investment by institutions, followed by Goodman at 23 per cent and GPT Group at 12 per cent," Mr Tyson said.
"Another notable market trend is REIT dominating the industrial property development pipeline. Throughout the eastern seaboard, there is over 660,000sq m of industrial floor space under construction," Mr Tyson said.
"The REIT are a major contributor of this supply. In particular Goodman, Dexus and Charter Hall have built up a solid industrial development pipeline of large-scale facilities and estates that are primarily catering for logistics and retail customers.
"Development hotspots in Sydney include western suburbs such as Eastern Creek, Chullora, as well as the south-west region of Prestons. In Melbourne, the development hotspots are found in the western suburbs of Ravenhall, Truganina, Altona and Derrimut, and the south including Dandenong South and Keysborough. Construction in Brisbane is particularly active in the south-west areas of Richlands and Redbank Plains, as well as Berrinba in the south.
"From an investment perspective, industrial property is currently the market leader amongst the commercial property asset classes," Mr Tyson said. "Analysis of IPD statistics show that over the past four years, income has represented an average 86.3 per cent of industrial's total return. This is markedly above the income return proportions for retail and office, which for both is around 75 per cent.
"If income is the component of the total return that matters most to the investor, then industrial should clearly be the preferred property option," said Mr Tyson.
