Sentiment providing stability to Australia’s industrial markets

Australia’s industrial property market has begun to emerge from the troughs of the global economic downturn, buoyed by stabilising yields and increasing tenant enquiry new research by Colliers International has shown.

Recent sales evidence in Brisbane suggests investment yields have remained steady with prime asset yields ranging between 7.75 per cent and 8.75 per cent, while in Sydney increased sales volumes have lead to yields and capital values stabilising at 8 per cent to 9 per cent for prime grade stock and 8.5 per cent to 10 per cent for secondary grade.

Malcom Tyson, Colliers International Managing Director of Industrial, said the reappearance of REITs will improve capitalisation rates in 2010 and fuel the industrial property market.

In December last year Colliers International negotiated the first industrial sale to a REIT in almost 18 months, with DEXUS Property Group paying $46.1 million for a major holding in the southern Sydney suburb of Matraville.

“The transaction signalled a turnaround in the buying profile of the country’s industrial space with all sales occurring from mid 2008 being to private investors, private syndicates or owner occupiers,” Mr Tyson said.

“Demand for investment stock will gather momentum this year driven by a distinct lack of new development across Australia in the short term, improving economic fundamentals and businesses planning for future growth.”

In the past six months just 112,000sq m of industrial construction was completed across Melbourne and just over 195,000sq m of space is expected to be completed this year. Of this, retailer Kmart and the listed Salmat Group have pre-committed to 75,000sq m and 22,000sq m respectively.

In Brisbane, the outer south precinct of Larapinta, Heathwood, Parkinson and Browns Plains is fast becoming Queensland’s emerging industrial hub, meeting demand for large allotments with construction of the 400,000sq m Radius Industrial Park and 11,000 South West One due for completion this year.

Felice Spark, Colliers International Director of Commercial Research, said around Australia face rents have stablised, supported by incentives of around 10 per cent.

“Prime grade rents in Sydney continue to range from $95/sq m to $185/sq m to average $112/sqm, while secondary grade rents are hovering between $70/sq m to $150/sqm to average $96/sq m,” she says.

“In Brisbane, the current average rent is slightly higher at $119/sq m with the TradeCoast region emerging as the City’s strongest performing precinct with net face rents averaging $134/sq m.”

In contrast to this trend, face rents for smaller premises in Perth are falling.

“A two-tiered rental market remains in Perth, with high levels of smaller stock still to be absorbed which, in turn, is placing pressure on rents,” Ms Spark says.

“Market rents are holding relatively stable, at about $80/sq m to $100/sq m across the City, assisted by growing business confidence and certainty as a result of improvement in resources activity and the economic outlook for Western Australia.

“Industrial rents for prime grade assets should hold and we might see some growth given the tightness of existing stock and also limited competition amongst developers in pre-leasing, given the continued difficulty in obtaining debt funding for new development.”

source : Colliers