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News release


Industrial is the new black:  JLL Report

2013 saw the highest transaction volumes in the Australian industrial market since 2007, with five dominant buyer groups.  New investors have joined the established players in the hunt for industrial property

​​​​AUSTRALIA, 2 APRIL 2014 – According to a new JLL report, five key criteria will be central for industrial investors in Australia this year – they will be on the hunt for yield, WALE, scale, portfolio growth and portfolio reweighting.

The Industrial Investment Market Review and Outlook 2014 lists the top five purchaser groups of industrial property that accounted for half of all transactions in 2013 that can be categorised as opportunities or portfolio sales – Goodman, Charter Hall, DEXUS, the GPT Group and Australian Industrial REIT (managed by Fife Capital Funds Limited).

These five groups purchased AUD 1.16 billion or 54% of the large value asset purchases. 
JLL’s Australian Head of Industrial, Michael Fenton said, “The top five purchaser groups accounting for 54% of transaction volumes in one year is eye opening.  Large established AREIT and wholesale fund manager platforms are attracting solid investor support.  However, this concentration is being challenged by new entrants and some older players with revised strategies looking to increase their industrial assets under management.

“The industrial sector continues to offer a yield premium to the office and retail sectors; an above benchmark premium to the real bond rates; and a premium to global industrial markets.  

“The big question in 2014 is: will Australian property yields tighten further in the face of rising bond yields?

“We expect that in some cases the strong weight of local and international capital looking for a home will cause further downward pressure on yields, and if transaction activity announced to market early in 2014 is a reliable guide, yields may compress more rapidly than presently being forecast,” said Mr Fenton.

The Industrial Investment Market Review and Outlook 2014 examines five key criteria that will be central to investment decisions in 2014:

The hunt for yield :  Yield compression is expected to be supported by (a) the weight of capital looking for high yielding assets; (b) a continuation of the long-term re-rating of the industrial sector reflecting changing tenant and investor profiles; (c) the spread to real bond rates; and (d) the wide yield spread between Australian and offshore industrial markets.

The hunt for WALE:  There has been a strong shift in the focus of investor groups with lower portfolio WALE (Weighted Average Lease Expiry) to extend or enhance this through targeted acquisitions of assets offering longer income streams.  As a result, longer WALE attracts greater attention as an investment decision criterion for those groups.

The hunt for scale:   There has been an increase in the number of groups looking to acquire scale in the sector with a limited number of assets on offer.  There is a first mover advantage in acquiring larger stabilised assets, as they will generally be held long-term, rather than used as trading style opportunities.  Investors have clearly taken notice of the scarcity value of large format investment product – 9 of the total 13 investment sales above AUD40 million occurred in Q4 2013.

The hunt for product (growth and product scarcity):  Despite rising transaction volumes each year since 2008, the current investment market still presents a scarcity challenge for investors.  Less than half all sales in the past three years can be considered ‘opportunities’.  This is creating challenges for investors that have committed to growing their funds under management in the industrial sector, particularly by acquisitions.

Reweighting of portfolios a priority:  Reweighting of portfolios by geography will be a particular challenge for investment or development businesses originally domiciled in a single market.  Most groups typically hold an overweight position in Melbourne or Sydney.

Michael Fenton said, “A key challenge for investors in 2014 will be how they deploy capital to access product and build a portfolio, while meeting other challenges such as reweighting by geography, increasing portfolio WALE and finding higher yielding assets that remain accretive.

“There are many opportunities for investors and developers in 2014 – target the asset creators or become one yourself, consider sale-and-leaseback options, investigate possible mispricing of risk in non-standard or specialised assets, aggregate secondary assets and look for private investors to sell in a strong pricing cycle.”

The volume of industrial transactions in 2013 was the highest since 2007 and the second highest on record.  In 2013, AUD 3.3 billion of transactions were recorded, still significantly below the AUD 4.4 billion recorded in 2007.

Head of Industrial Research - Australia, Nick Crothers said, “2013 was also notable due to the number of new entrants to the market, with some reversal of the consolidation that had occurred in 2009 and 2010.

“Wholesale funds were the largest purchasers of industrial property in 2013, accounting for 34% of transactions by value.  AREITs purchased 17%, followed by private companies and investors with 16% and developers and property companies with 12%. 

“In contrast, there was very little concentration within the sellers.  Only a few vendors sold multiple properties in 2013.  Developers accounted for approximately 19% of transactions by value, followed by private companies and investors with almost 19%, corporates with 15% and wholesale funds at 11%.”

Transactions by Value Cohort.jpg
Biggest take up of industrial space in 2013 – Transport and Storage sector:

The Industrial Investment Market Review and Outlook 2014 shows that the biggest take-up of industrial space by industry sector in 2013 was from the transport and storage sector (freight and logistics), at 31% .  Wholesale trade was next at 22%, followed by Manufacturing at 16% and retail trade at 12%.

Nick Crothers said, “Undoubtedly a more significant driver of industrial property demand in Australia is the transport and storage sector.  The key drivers of industrial occupier demand will remain Australia’s consumption driven economy with highly concentrated urban centres.  The logistics and freight sector will continue to be supported by strong population growth, rising import volumes and sustained consumption growth.”

Gross Take-up by Industry Sector in 2013.jpg

Construction Activity – 2014 has the potential to exceed levels not seen since 2008:
Construction activity in 2013 was below the national average at 1.2 million sqm of new supply completed nationally.  This year, 1.26 million sqm is under construction and scheduled to complete in 2014, with approximately 76% of that due in the first half of the year.

Nick Crothers said, “A further 711,00 sqm of projects currently have planning approval, heavily weighted toward the second half of 2014, suggesting that if occupier pre-commitments can be secured for those project that have plans approved or submitted for the second half of 2014, construction in 2014 could exceed 2 million square metres for the first time since 2008.”

Gross Take-up in Major Capital City Markets.jpg