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News release

AUSTRALIA

Re-rating of Australian Industrial sector gaining momentum

The evidence signalling a re-rating of the Australian Industrial sector is gathering momentum.


​The evidence signalling a re-rating of the Australian Industrial sector is gathering momentum.

JLL's Research Manager, Sas Liyanage said, "Industrial property has been among the best performing commercial property investment classes over the past 15 years, according to IPD data.

"When making an adjustment for the volatility of these returns, industrial distribution centres have proved to be the second strongest risk-adjusted performer in Australia's commercial real-estate landscape, second only to retail super and major regional shopping centres. The proven stability in income returns for industrial property, particularly through previous downturns, has lured strong investment into the sector and broadened the investor base."

Traditionally, the CBD office asset class has been viewed by most institutional investors as the benchmark asset class. However, over time the yield gap between prime grade industrial property and prime grade CBD office property has narrowed. Since 1990, the average yield gap has narrowed from 380 bps to only 44bps at present.

Nick Crothers, JLL National Director – Industrial said, "What we have experienced over this period is greater volumes of industrial asset sales, greater development of leading edge distribution centre facilities, greater institutional ownership and management of industrial property and greater outsourcing of distribution functions by corporates to third-party logistics providers in Australia. These are all factors that have been viewed favourably by investors when purchasing industrial property, resulting in yield re-rating in the sector."

For example, last year Australia had the second largest Industrial transaction volume in the Asia-pacific region, and Industrial investment volumes have climbed for nine consecutive years, according to JLL Research. Offshore direct investment in Australian industrial property has grown drastically in the last seven years, having a significant impact on our market. For example, foreign transaction volumes in the industrial market in the period since 2015 were larger than the combined foreign buyer transaction volumes from the entire preceding 26 years.

"We're now looking toward the next phase of structural changes and their impacts on the market. These include the expected benefit to the sector from record road, rail and airport infrastructure developments and the progressive introduction of new technology in the sector, from the design, development, management and operation of warehouse and logistics facilities in our major markets," said Mr Crothers.

"Along with the yield compression we've seen in the sector in the last few years, the assumed risk premiums in the industrial sector have also declined in this period. We know this has been a long-term trend. What investors now have to determine is how the impacts of technology on the sector will change overall demand for industrial space from occupiers and how new transport infrastructure projects will affect individual market locations and whether they are over or under exposed to these changes in their current portfolios."