Industrial property investment returns peak at 11.7 per cent with facilities 33 per cent bigger than they were in 2010, according to the latest research.
Strengthening returns and increasing scale of distribution centres and warehouse facilities are satisfying the strong investor appetite with total investment returns achieving a post GFC peak of 11.7 per cent, according to the latest Colliers International industrial research report Supersized stock: Industrial floor space reaches record highs.
Malcom Tyson, managing director of Industrial at Colliers International said new industrial facilities across the eastern seaboard are 33 per cent bigger than they were in 2010, with national average floor space increasing in scale due to occupiers competing for the most efficient model.
“Growth in the floor space is affected by the relentless drive for efficiencies, e-commerce and growing demand from population growth. Occupiers are consolidating their operations into larger facilities to reduce overheads, centralise stock and streamline transport flow.
“The average size of a new facility nationally is currently 13,972sqm, with the sizes forecasted to continue to grow for all major cities apart from Perth. Melbourne leads the pack where an average size of new facility is now 19,555sq m, the biggest it has been in five years.
“From an investment perspective, the industrial market continues to be a market leader, with total returns hitting a peak of 11.7 per cent ahead of other commercial sectors such as retail at 11 per cent and office returns at 9.6 per cent, according to IPD data.
“Investors are attracted to industrial property’s strengthening returns because of its structured income, strong covenant and low associated risk. Leading institutions including Goodman, Australand, Dexus and Charter Hall are under commercial pressure to deliver strong returns as substantial inflows from offshore and local investors have boosted coffers.
“In response, institutions have led the trend to develop purpose-built warehouses and distribution centres for pre-committed occupiers. A good measure of speculative stock has also been delivered this year throughout the transport and logistics nodes in Sydney and Melbourne and to a lesser extent in Brisbane.
“Analysis of Colliers International and Cordell’s databases shows that in 2014 over 1.6 million square metres of new industrial floor space (facilities over 5,000sq m) is expected to be added to the capital city industrial markets. Sydney is leading the supply additions with 639,251sq m, followed by Melbourne where 454,906sq m is being delivered and Brisbane with 383,990sq m.
“The activity is set to continue in Sydney, with over 110,000sqm of large-format supply due to hit the market over the next 18 months, showing the confidence institutions have in the market demand. In Melbourne’s west, industrial ‘super sheds’ over 20,000sqm are being developed, with two new 24,000sqm facilities to be completed in the second half of 2014,” said Mr Tyson.
Mark Courtney, director of research at Colliers International said the investment sales volumes have been consistent at about $2.6 billion dollars in recent years, with 2014 full year figure set to rise well above this.
“Institutions continue to be a dominant investment class, making up 53 per cent of all purchasers by total value of investment sales in 2014 year to date, compared to 65 per cent in 2013. The largest transaction for the year so far is sale of the 100,000sqm Melbourne Market site on Hume Highway in Epping, for $77 million to fund manager Propertylink.
“Meanwhile, private investors have sharply increased their investments, accounting for 28.4 per cent of all purchases in 2014 year to date, compared to 17.7 per cent in 2013.
“Accommodative finance terms and the trend of self-managed super funds (SMSF) investing in property remain key factors in driving private investors’ interest in industrial assets valued between $5 and $10 million.
“For more than a decade, the key driver of investment funds into industrial property has been the occupier demand for storage distribution centres and logistics floor space.
“If this fact holds and the developers don’t get too far in front of the supply curve, it is highly probable that industrial market will continue to provide a safe and steady investment return and perform well particularly in low growth environments,” said Mr Courtney.
