There is seven times the amount of capital waiting to get into Australia’s booming industrial sector than required, despite a record level of building in the past quarter.
Speaking at The Urban Developer’s Industrial and Logistics vSummit, Centuria Industrial REIT fund manager Jesse Curtis said there had historically been an under-representation of institutional investors in the industrial sector, which had fundamentally shifted in the past 12 months.
“There’s $45 billion of capital waiting to get into the market … that’s six or seven times what is required right now,” Curtis said.
“That’s going to put pressure on prices in terms of demand and supply.”
According to an ANREV survey of 84 industrial investors, with $US846 billion in funds under management globally, the Sydney industrial market was the number one area for investment in the Asia-Pacific region.
More than 70 per cent of respondents said they were looking to increase their allocation of funds into the industrial sector.
There was an average of 9.3 per cent of funds allocated to the sector, but most were aiming for a 10 per cent weighting, which JLL head of industrial and logistics research Annabel McFarlane said indicated capital inflow to the sector.
While the appetite for investment is there, the supply of development and investment opportunities is constrained with limited brownfield development sites putting upward pressure on land prices.
“We have a strong desire for urban industrial sites and we have a real problem finding the land,” McFarlane said.
“Pre-lease rents will have to go up … otherwise the numbers won’t stack up.”
Transaction volumes by sale type
National director of Colliers David Hall said the price of industrial land had increased significantly while land supply dwindled.
Hall said in 2014 land prices were about $315 per sq m, which had increased to more than $1000 per sq m this year for properties greater than 5000 square metres.
“Fundamentally industrial as an asset class the value is underpinned by the land … we’ve got land supply issues for industrial development,” Hall said.
“In Sydney there’s no more land once we get through the land near the airport … this will always be an issue for investors.
“Australia still lags behind what [capitalisation] rates and yields are around the world.”
JLL’s Annabel McFarlane said global figures indicated there was still “room for further yield compression” as the trend of e-commerce continues its accelerated growth, driving demand for increased industrial space.
McFarlane said the second quarter of 2021 had delivered a record amount of commencement rates on new industrial developments with 808,000 sq m across 33 projects.
“About 50 per cent is already pre-committed which goes to the incredibly strong demand we have,” she said.
“We think that by and large that most of this stock will be absorbed by the practical completion … which poses a risk to secondary assets with that flight to quality.”
On average about 83 per cent of speculative industrial development is tenanted at practical completion and McFarlane said she anticipated that this would continue despite the large volume of space that would come online.
“Industrial is the only sector to benefit from the pandemic,” she said.
“The transaction volumes that we’ve seen across markets has been huge.”
Article Source: www.theurbandeveloper.com
Centuria Invests $129m on East Coast Industrial Assets
Centuria has boosted its pure-play industrial fund with four assets in New South Wales, Victoria and Queensland to take its real estate investment trust portfolio to more than $3.6 billion in assets.
More than 80 per cent of the acquisitions are weighted to the hotly contested Sydney and Melbourne industrial markets on yields as low as 3.7 per cent.
Centuria Industrial REIT (CIP) fund manager Jesse Curtis said the acquisitions were strategic within tightly held industrial markets that were benefiting from low vacancy rates and increasing rental prices and demand.
“The acquisitions lend themselves to last-mile logistics and distribution tenant customers and benefit from strong tailwinds across Australia’s industrial sector, particularly from the strong rise in eCommerce adoption and supply chain onshoring,” Curtis said.
“These assets align with CIP’s strategy to acquire assets located in land constrained urban infill markets, where tenant demand currently outstrips forecast supply.
“The portfolio of assets provides a number of opportunities to actively manage the portfolio to add value through capturing outsized rental growth from under-renting of the assets and potential development or activating higher and better use potential.”
Curtis said the 3.7 per cent yield on the $70-million transaction of 82 Rodeo Road at Gregory Hills in south-west Sydney was comparable to international industrial yields, following significant compression over the past two years.
CIP’s Sydney sub portfolio is now worth more than $1 billion after almost $370 million in transactions this year.
“Throughout the past 12 months, the prime Sydney industrial market has aligned itself more closely with global market yields due to eCommerce customer demand driving tenant requirements for warehousing within close proximity to a large population catchment,” Curtis said.
“Gregory Hills is highly desirable given south-west Sydney’s strong population growth and excellent connectivity to major arterials roads, accessing a large distribution network.”
CIP also spent more than $20 million on a Derrimut industrial facility, $18 million on a 2392sq m site at Port Melbourne, and $20.8 million on an industrial estate at Coopers Plains in Brisbane.
Colliers International’s Gavin Bishop, Sean Thompson and Fab Dalfonso were the agents for the Gregory Hills transaction. Simon Beirne and Levi Maxwell, also from Colliers, were appointed agents for Coopers Plains.
CBRE’s Ben Hegerty was the agent for the Derrimut transaction and Dawkins Occhiuto’s Chris Jones and Walter Occhiuto were the agents for the Port Melbourne transaction.
The weighted average lease expiry across the four sites is 3.5 years, with an average yield of 4 per cent.
Article Source: www.theurbandeveloper.com
Industrial Sector Hot Streak Far From Over
Industrial property has been white hot during the past few years, thanks to the booming e-commerce sector, improvements in automation and demand for last-mile logistics.
Global supply chain disruptions last year, especially in retail, have resulted in rising inventory requirements and greater demand for space. These trends, along with strong leasing demand, are continuing to drive growth in the sector.
“In this competitive market, sourcing the right assets is important and we look for assets in strategic locations where we can add value through development and active asset management,” Lendlease Investment Management managing director Scott Mosely says.
“We recently acquired two facilities in Altona that adjoin existing fund holdings and this creates multiple opportunities for us to expand and develop them, and add value for our investors.”
During the past few months, Lendlease has acquired around $720 million in industrial assets, including a mix of established assets and development sites.
“The outlook for the sector remains bright for the right assets in strategic locations. The leasing market is particularly strong and we continue to see strong levels of enquiry,” Mosely says.
CBRE industrial and logistics executive director Chris O’Brien agrees the continued evolution of e-commerce and high demand for warehouse space has helped drive yield compression to historically low levels, with current pricing reflecting incredibly tight vacancy levels and strong rental growth forecasts.
He says lockdowns are positively affecting prices.
“There is a direct correlation between disruption to the markets due to lockdowns and an uptick in appetite for industrial and logistics assets, which are seen as defensive,” O’Brien says.
“Conveniently, it’s also one of the easier asset classes to assess sight unseen or virtually, given many properties are single-tenanted and offer net leases.”
O’Brien says the industrial property market is yet to peak, given the continued weight of capital, occupier demand and declining vacancy rates: “We consider continued yield compression is highly likely, combined with incremental rental growth.”
Looking ahead, CBRE anticipates a continued increase in property values for the remainder of the year and beyond as a result of yield compression and continued rental growth.
Australian Unity’s head of property research Damian Diamantopoulos says Covid has emphasised the importance of exposure to resilient income-generating assets.
“Industrial property is supported by strong e-commerce sales thanks to stay-at-home orders,” he said.
“Investors want long-lease duration properties underpinned by strong corporates, big box retail and self-storage.”
Diamantopoulos says industrial property prices are being driven by improving business and consumer sentiment, Australia’s success in supporting its economy and an extremely low interest rate environment, which enhances the relative attraction of property as an asset class.
“On the whole, direct property total returns remain largely underpinned by asset-produced income.
“Industrial property is the clear exception, where returns have been strongly influenced by the weight of capital chasing these assets.
“When we look at the way industrial property has staunchly fended off the pandemic, it’s easy to see why capital growth has been significant.
“Everyone appears to be chasing established industrial properties to buy or, for those with the capability, rolling out industrial developments in abundance.
“Many institutional investors have been underweight in the sector, this helps the demand argument, with recent transactions occurring at yields of around 3.8 per cent to 4.5 per cent.”
Market rent growth remains a key question in the industrial sector and has at times proved elusive. The question is whether this time will be different.
“Leasing conditions remain strong and occupancy rates are high. Retail e-commerce tenants continue to want warehouse and logistics space, as well as pharmaceutical and other essential service tenants,” Diamantopoulos says.
“Automation and inventory build ups are also adding to this positive tailwind.”
Recent transaction evidence shows industrial properties trading at yields of circa 4 per cent—essentially tighter levels than office and retail properties.
“Listed A-REITs are valuing their industrial properties at 4.5 per cent cap rates at June 30, so it appears a tad more valuation uplift and cap rate tightening is to come, based on recent sales,” Diamantopoulos says.
While yield spreads over 10-year bonds have narrowed in the industrial sector, deals are not slowing down. Growth prospects for industrial assets are expected to outstrip office and retail during the 2022 financial year.
Asia Pacific logistics and real estate platform ESR bought Blackstone’s Milestone industrial portfolio for $3.8 billion, reflecting a cap rate of around four per cent.
The portfolio comprises 45 assets in Melbourne, Sydney, Brisbane, Adelaide and Perth and houses 100 different tenants, including Lineage Logistics, WesTrac, Toll and Woolworths.
At the time, the transaction reflected a very sharp cap rate that was assumed to have included a portfolio premium—transactions have since firmed.
AMP Capital sells a Sydney logistics facility leased to Best & Less at 1 Eucalyptus Place, Eastern Creek to Lendlease for $130 million on a yield of 3.62 per cent.
The 35,000sq m industrial property is the national distribution hub for Best & Less and was transacted at the sharpest yield for an Australian institutional grade industrial asset to date.
Lendlease’s Australian Prime Property Fund Industrial acquires a portfolio of three assets from the Mirvac Industrial Logistics Partnership for approximately $161 million, increasing the fund’s portfolio to 39 assets.
GPT acquired a Spotlight warehouse in Laverton North, Victoria from a private investor for $73 million, representing a tight yield of 3.8 per cent.
The recently refurbished 33,360sq m warehouse is fully leased to Spotlight for a five-year term, and features 31,306sq m of high-clearance space as well as 2,052 sq m of corporate offices and staff amenities.
Charter Hall acquires two industrial assets at South Guildford in Perth’s industrial precinct for $50.75 million, reflecting a 4.35 per cent yield.
Excluding 8000sq m of vacant land, the acquisition was said to reflect a yield of 4.5 per cent.
The facilities have an 8.5 year WALE and are occupied by Cleanaway and Chemist Warehouse. The acquisition includes a large component of unused land which provides development potential.
Dexus acquired the McPhee Super Core Logistics portfolio for $186 million on a yield slightly above 4 per cent. The four properties comprise more than 70,000sq m of industrial space on an average lease expiry of 6.7 years.
The portfolio includes a warehouse occupied by Australia Post at Truganina in Melbourne’s west with room for expansion, with three more logistics facilities at Berrinba in Queensland. Other major tenants in the portfolio include McPhee Transport, TLS and Rinnai.
GPT acquired Ascot Capital’s 28-asset portfolio for around $825 million, representing a yield of around 4.4 per cent across the portfolio, according to media reports.
The yield on the industrial portion of the portfolio was said to be around 4 per cent. The portfolio has 24 logistics assets and four offices.
Lendlease, in a 50-50 joint venture partnership with an investment vehicle sponsored by Morgan Stanley Real Estate Investing, acquired a portfolio of eight industrial assets from a private logistics group.
The assets comprises five leased industrial facilities, each with 15-year WALEs, and three development sites, with a developed value of around $430 million.
Centuria Industrial REIT acquired a portfolio of eight industrial properties across Sydney, Melbourne, Brisbane and Perth for $351 million on a blended initial yield of 4.1 per cent.
The centrepiece property is a $200.2-million super-prime distribution centre in Fairfield NSW.
Article Source: www.theurbandeveloper.com
Fears Wharf Strikes Will Bring Construction to its Knees
The construction industry has been dealt another blow as industrial action cripples ports across Australia, adding pressure to an already constrained construction materials supply chain.
The Maritime Union of Australia has launched strike action at Patricks Wharfs at Sydney, Melbourne, Brisbane and Fremantle, in a campaign for pay rises and increased union control of manning levels and hiring.
Port Botany wharfies in Sydney will strike next weekend, while Melbourne wharfies plan to strike every second day in October.
Master Builders Australia chief executive Denita Wawn has condemned the industrial action, which she said would paralyse the industry.
“More than $10 billion in building products was imported in the past 12 months and these strikes will hammer the building supply chain which is already under huge pressure,” Wawn said.
“Our members are already experiencing long delays and substantial cost increases due to product shortages and these strikes will make it even harder for building and construction businesses across the country.
“There’s absolutely no doubt these strikes risk hurting the recovery from Covid as governments around the country are harnessing the building industry’s economic multiplier effect to accelerate economic activity and growth.”
Container ships have been waiting up to 18 days at berth in Sydney as a result of the industrial action while negotiations have stalemated once more.
The property industry has underpinned Australia’s Covid-19 economic recovery and produces about 13 per cent of the nation’s gross domestic product.
It has been grappling with steel and timber shortages as a result of global supply chain issues and the tailwinds of the HomeBuilder stimulus package fuelling a construction boom.
According to the Housing Industry Association, 82 per cent of builders are reporting delays with supply or trade, and there is about a 15-week lead time on timber trusses and frames, but this could blow out significantly with port industrial action.
Patrick Terminals chief executive Michael Jovic said the company had been in negotiations with the Maritime Union of Australia since February 2020, and they had an offer on the table for a 2.5 per cent pay rise over the next four years.
The ongoing industrial dispute has reportedly cost Patrick Terminals more than $15 million in revenue, which the union has rejected, while impacting supply chains across the country.
Wharf industrial action was also brought to the Fair Work Commission at this time last year, where claims were made it was delaying supply chains by up to three weeks.
But supply chain disruptions to the construction industry are likely to persist beyond the middle of 2022, according to a global risk survey released recently.
The Oxford Economics survey found one in eight businesses surveyed this month said they had been “severely affected” by supply chain interruptions, and half of respondents said they expected the Delta outbreaks to affect their businesses well into next year.
The Property Council of Australia said labour and material shortages driving up the cost of construction jobs and disruptions caused by the pandemic had delayed projects. Material shortages are at their worst in four decades.
The Australian Competition and Consumer Commission is already investigating reports of price gouging in the shipping industry, and is due to release its annual stevedoring monitoring report in November.
Article Source: www.theurbandeveloper.com
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