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News release

National Industrial Survey reveals investment intentions

76% of survey respondents were certain or likely to invest in Australian industrial property over the next 18 months and 90% in the next 3 years

AUSTRALIA, 7 SEPTEMBER 2011 – The outlook for investment in Australia’s industrial property sector over the short and medium term looks bright, with 76% of investors who responded to a national survey stating they were certain or likely to investment over the next 18 months.
The outlook for investment was even more positive in the medium-term, with 90% of respondents stating they were certain or likely to investment in industrial property in the next 3 years.
The Jones Lang LaSalle Industrial Investor Survey 2011 was conducted during May and June and involved responses from 42 industrial investors controlling almost 750 industrial assets in Australia.
Industrial Investor Survey 2011: Key Points
• A large majority of survey respondents intend to invest in the industrial market in the next 18 months to 3 years and have capital ready to deploy.
• Absolute yield levels, yields relative to alternative assets, the outlook for capital value growth and the outlook for rental growth are the main factors that are encouraging investors to enter the industrial sector at present.
• Moderate yield compression and further growth in rents will be supportive of capital value growth, according to Jones Lang LaSalle research.
Australian Head of Industrial, Michael Fenton said the survey was supportive of Jones Lang LaSalle’s view that investment sales volumes would not only pick up in the second half of this year, but over the next few years.
“Many investors in the survey were encouraged by the yields in the industrial sector and the outlook for capital value growth.
“Capital was not considered a current issue by the survey respondents.  Approximately 71% of respondents have capital ready to deploy in the industrial sector immediately.  In terms of available capital, 40% of respondents indicated they had a combination of debt and equity for investment. 
“Notably there was a mix of groups surveyed who are seeking passive investments and others seeking to move up the risk curve to enhance returns.
“Despite the typically slow start to the year, sales volumes in the first half of this year are up 33% on the same period last year,” said Mr Fenton.
“We have seen larger value assets transact during the Second Quarter. This was lead by the transfer of a $220 million portfolio of assets from Australand to a newly formed joint venture lead by GIC of Singapore and Australand in May 2011.
“Recent financial market volatility has the potential to be disruptive to industrial investment markets if it persists, and indeed spreads. Such conditions would typically cause two reactions. Investors would postpone decision making and there would be a further flight to safety or quality. As yet, there has been no indication by investors that either of these actions is being undertaken.
“While we continue to monitor global markets, we are still expecting investment in the industrial sector (both through direct asset purchases and funding of development) to pick up over the next 18 months and the Industrial Investor Survey 2011 has confirmed that view,” said Mr Fenton.
Director, National Industrial Research, Nick Crothers said, “This inaugural survey was used to gauge participants’ views on investment intentions, capital and debt issues, investment criteria and strategy, as well as investor attitudes to sustainability.
“The Survey confirmed Jones Lang LaSalle’s views that most respondents are seeking prime grade assets, the most preferred industrial category is warehouse or distribution facilities and the most popular locations remain the Eastern Seaboard cities.
“The positive yield spread was nominated by many respondents in the survey as a key factor encouraging investment in the industrial sector at present.  This will be supporting of industrial returns moving forward and is the key attraction of industrial property.
“Combined with rental uplift, this should deliver steady value growth over the next few years,” said Mr Crothers.
Nationally, as at June 2011, there existed a positive yield spread between prime office and prime industrial assets of around 75 basis points (national average across monitored markets). This is just below the ten year average spread of 100 basis points and reflects the re-rating of the industrial sector due to a shift to better product type, better quality of leasing covenants and substantial improvement in transport and infrastructure over the last decade.
Rents increased across most markets in the 12 months to Q2 2011, with a strong increase recorded in more supply constrained areas.  Rental growth is expected to be at or slightly higher than trend for most markets in the next few years.

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