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News release

Sydney

Industrial asset prices stabilising as leasing fundamentals improve

Jones Lang LaSalle’s Q3 statistics show yield easing cycle nearly over


SYDNEY, 21 OCTOBER 2009 – There are clear signs of the national industrial sector levelling out in the last three months and market fundamentals are set to improve going into the last quarter of 2009, according to Jones Lang LaSalle’s Q3 2009 research statistics.
 
Jeff Pond, Head of Industrial Services at Jones Lang LaSalle believes market sentiment is certainly more positive than only 6 months ago, with a noticeable improvement in optimism amongst clients plus new enquiry levels having increased markedly. This is expected to translate into more deals getting across the line in the next 6-12 months.
 
The research shows that total industrial sales transactions of $305.1 million were recorded during the third quarter of 2009 (sale price >$5 million). This compares to $481.6 million during the previous quarter. Jeff Pond believes sales volumes will continue to pick up in the next 18 months, and cites the two large transactions in Sydney this quarter as evidence of buyer and seller expectations meeting.
 
“The $62.25 million sale of the Australian Red Cross Blood Service development at 17 O’Riordan Street, Alexandria in South Sydney set a new benchmark as the highest price industrial sale recorded in Australia this year. This was another case of an institutional investor as vendor and private buyer as purchaser.
 
“The other notable transaction was the Corporate Express occupied Lockwood Road, Erskine Park asset which was purchased for $43.8 million by Kador Group, a Melbourne-based private investment company,” said Mr Pond.
Gross take-up of industrial space has picked up to 392,000 sqm in Q3 2009. This is well up from the 358,000 sqm recorded in Q2 and 308,000 sqm in Q1.
 
The lion’s share of take-up activity was in Melbourne (54%) followed by Brisbane (25%) and Sydney (8%). Perth and Adelaide recorded decreases in take-up activity over the last quarter.
 
“This is a very healthy level of activity considering the economic climate we faced only six months ago. Operators in the third party logistics services sector and freight forwarding solutions businesses have proven resilient throughout 2009 and continue to win contracts and require well located, modern and efficient warehouse and distribution facilities in all cities,” said Mr Pond.
 
“This quarter’s biggest deals include Toll Logistics leasing 32,185 sqm at Somerton (Melbourne North); Booth Transport leasing 23,000 sqm at Altona North (Melbourne West); NQX Freight Systems leasing 18,100 sqm at Altona North; Vic Imports Pty Ltd leasing 18,105 sqm at Clayton (Melbourne South East); and, Knauf Insulation taking 22,000 sqm in an owner occupier deal at Mayfield West (Newcastle).
 
“Consumers have been more resilient than some market indicators predicted, meaning ongoing and increasing demand for products which means inventory levels should again start to rise in the near future. Businesses that reigned in costs and bunkered down for a terrible trading year are likely to have been surprised on the upside and are now looking at their operations with more optimism than earlier in the year.
 
“We have seen strong demand for leasing existing premises and also by owner occupiers recognising now is an opportune time to buy if the right asset appears. A solid 18% of gross take-up was driven by owner occupier moves this quarter, with the remaining 82% leases for existing premises,” said Mr Pond.
 
Industrial rents continue to hold up and in Q3 2009 there were only modest falls in existing rents in some monitored precincts. Average prime rents fell by -2.5% in South East Melbourne, -1.4% in West Melbourne, -0.7% in Outer Western Sydney and -0.5% in South Sydney. All other major markets recorded no change in rents.
 
Nick Crothers, National Industrial Analyst at Jones Lang LaSalle expects that the majority of rental adjustment has already occurred in most industrial markets, with those markets that showed rapid growth in the boom years having eased the furthest.
 
“Rents in places like Perth, Melbourne’s South East, South Sydney and parts of Brisbane have declined the most in the last year. Other markets have been broadly steady because of a lack of oversupply and stronger than expected demand.
 
Now that there is very little existing vacancy in the West of Sydney, Melbourne’s West and inner Brisbane there is support base under asking rents,” said Mr Crothers.
 
There was 307,000 sqm of new supply completed around the country in Q3, the majority of that in Brisbane (32%), Sydney (30%) and Melbourne (19%). New construction has been dwindling each quarter and there is only 313,000 sqm under construction that is scheduled to complete in Q4 this year with 78% pre-committed.  After that the supply pipeline really thins out.
 
“New supply in 2010 is expected to be very weak. Only 396,000 sqm of supply is under construction for 2010 completion, 88% of which is pre-committed. This means there is very little in the way of vacant stock coming to the market and supply is going to be well below trend next year,” said Mr Crothers.