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News release

SYDNEY

Investors showing increased confidence in industrial sector for 2010 as fundamentals improve

Jones Lang LaSalle’s Q4 statistics show average sales price increasing


SYDNEY, 27 JANUARY 2010 – An increase in average sales prices recorded in Jones Lang LaSalle’s Q4 2009 research statistics show increased investor confidence in the industrial sector going into 2010.
 
Jeff Pond, Head of Industrial Services at Jones Lang LaSalle, has noted a positive shift in sentiment by tenants, investors and developers and expects to see greater activity levels in the industrial sector in 2010.
 
The research shows that total industrial sales transactions of $276 million were recorded during the fourth quarter of 2009 (sale price >$5 million). This compares to $415 million during the previous quarter. However, Jeff Pond cites the sales of several larger value assets in the latter half of 2009 as evidence that investor confidence has improved markedly.
 
“The average transaction value increased throughout each quarter of 2009 – culminating in an average sale price of $16.2 million in the December quarter compared to an average of only $11.9 million in the previous three quarters of 2009.
 
“The $64 million sale of the Coles Distribution Centre on the Hume Highway at Goulburn in New South Wales in December 2009 was the highest value industrial sale recorded in Australia in 2009.
 
“There were four sales in the latter half of 2009 that achieved prices greater than $40 million (all in Sydney). These are the big sales that have been missing since the market downturn begun. It indicates investors are willing to channel greater volumes of capital into the industrial sector and are seeing good value at current market pricing, which we think has now troughed,” said Mr Pond.
 
Gross take-up of industrial space dropped to 190,000 sqm in Q4 2009. This is down on the 401,000 sqm recorded in Q3 2009.
 
The majority of take-up activity in Q4 2009 was in Melbourne (81,000 sqm) followed by Sydney (51,000 sqm) and Brisbane (25,600 sqm), closely followed by Adelaide (24,400 sqm).
 
Some of the biggest deals recorded in Q4 2009 include:
 
• Toll Holdings leased 26,200 sqm at Somerton (Melbourne North);
• ADN/Solve leased 22,900 sqm at Somerton (Melbourne North);
• Unlisted Building Australia Pty Ltd leased 17,500 sqm at Brooklyn (Melbourne West);
• Oz Design Furniture have committed to a 33,600 sqm Design & Construct deal for a three stage distribution facility in Rouse Hill (Sydney Outer North West);
• TNT pre-leased 9,980 sqm in Beverley (Adelaide Inner West).
 
Nick Crothers, National Industrial Analyst at Jones Lang LaSalle states that the decrease in total take-up is a reflection of the lack of available vacant space and an inactive development market.
 
“What we had during 2009 was a supply pipeline that was heavily pre-committed and a lack of speculative development – this limited the availability of space. The economic outlook has improved and businesses are now more confident about making property decisions – we expect leasing activity to pick up as we move through 2010,” said Mr Crothers.
 
“The balance in the fundamentals of supply and demand has become very fine and investors are buying into that improving outlook. There has been an improvement in tenant enquiry – for larger spaces this enquiry is becoming difficult to meet due to a lack of new development. We are talking 10,000 sqm-plus users that will be driving the pre-lease market and a shift towards greater development activity as we move through 2010,” said Mr Pond.
 
There was only 274,000 sqm of new supply completed in Q4 2009 (a decrease was recorded in each quarter of 2009 as the supply pipeline diminished). The majority of supply last quarter was in Brisbane (46%), Sydney (33%) and Melbourne (10%).
 
New supply in 2010 is expected to be lower than previous years. However, new construction activity has picked up sharply as 268,600 sqm (or 43% of stock under construction) began construction in Q3 or Q4 of last year. There is now 617,100 sqm under construction that will complete in 2010 – the majority of which is pre-committed.
 
“Clearly developers have become more active as conditions have allowed. That includes the cost of funding, the impetus for tenants to pre-lease as vacancy dries up and the viability of projects as pricing has stabilised. There have been some starts on speculative projects to meet the shortfall in new supply – one major institutional developer is developing two warehouse facilities with a combined 47,000 sqm of space in Derrimut in Melbourne West,” said Mr Pond.
 
Industrial rents continue to hold up and have stabilised further in Q4 2009. Average prime grade rents increased 2.7% in Perth North, but fell by 1.0% in South Sydney. All other major markets recorded no change in prime rents. Secondary grade average rents increased by 4.2% in Perth North and decreased by 1.6% in Melbourne South East and 1.8% in Melbourne West.