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News release


The forward supply pipeline for industrial is tightening as occupiers focus on driving efficiencies from their real estate

Asset pricing expected to tighten moderately over the next six months

AUSTRALIA, 7 NOVEMBER 2012 – The forward supply pipeline is tightening as large projects complete construction and less new projects begin, according to the latest Industrial Research from Jones Lang LaSalle. Supply under construction over the next 12 months to September 2013 is only 39% of supply completed in the previous 12 months to September 2012.

Australian Head of Industrial, Michael Fenton said, “We expect institutional grade vacancy to tighten further and tenant retention levels to remain elevated. This may lead to a fresh wave of pre-lease and Design and Construct commitments from businesses needing to meet organic growth requirements or seeking to drive efficiencies by vacating obsolete industrial space.”
There was 282,300 sqm of new supply completed in Q3/2012. Approximately 90% was pre-absorbed on completion. There has been a significant slowdown in the rate of construction from the first half of the year. Only 289,200 sqm is under construction and due to complete in Q4 2012.
Key highlights of the third quarter Industrial Research show:
• Gross take-up recorded in Q3/2012 was 465,200 sqm. This brings gross take-up nationally year-to-date to 1,245,400 sqm and likely to end the year close to the 10 year average;
• There was 282,300 sqm of new supply completed in Q3/2012. Approximately 90% was pre-absorbed on completion;
• There was a fair drop in the pace of project completions in the third quarter of this year, led by Sydney. The forward pipeline indicates supply will remain tight in 2013;
• The existing market rental growth pulse has slowed in most markets throughout 2012;
• Prime grade yields across the forecast industrial markets were little changed in Q3/2012;
• Average net face rents for existing stock in forecast markets are broadly expected to track inflation over the forecast period.
Director of National Industrial Research at Jones Lang LaSalle, Nick Crothers said, “The economic outlook suggests that industrial sector demand will remain positive. Under the impact of falling interest rates there are signs of a recovery in retail spending. However, manufacturing and business confidence indexes paint a more subdued picture and jobs ads data have been weak.
“The rental pulse has weakened a little in 2012, after a strong year in 2011. There was little evidence on rental growth for prime grade existing stock in the third quarter this year.
“Over the year to Q3/2012, prime net face existing rents in Perth East increased 6.1%, Sydney Outer Central West increased 2.6%, Brisbane Southern was up 1.9% and Melbourne South East saw growth of 1.2%.”
“There has been very limited growth in secondary grade rents in the last year. Indeed, some precincts have reversed course a little and recorded slightly negative growth over this period,” said Mr Crothers.
Investment demand has been solid, though there have been less assets coming to market for sale, keeping a lid on sales volumes. The largest industrial sale this quarter was a portfolio sold by Jones Lang LaSalle on behalf of BlackRock Property Trust (Australia) to Goodman Australia Industrial Fund (GAIF) for AUD 115.2 million. The portfolio comprises seven assets across Sydney, Melbourne, Brisbane and Canberra.
Mr Fenton said, “Asset pricing has been stable, though we are beginning to see signs that lower borrowing costs are feeding through to price assumptions for domestic investors. We expect further evidence of this the longer interest rates remain at historically low levels.”
Most of the domestic institutions holding substantial industrial property are now focused on increasing their exposure, along with a number of offshore funds, boutiques and smaller funds looking to grow their presence in the market.