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News release


Industrial occupiers keen to get on with business

Cautious approach means longer timeframes for decision makers

SYDNEY, 27 JANUARY 2009 - December quarter statistics released by Jones Lang LaSalle Research show that industrial property occupiers and investors remain cautious about committing to deals in the current environment. A greater amount of due diligence is lengthening the timeframe for deals to be closed off as all parties check and double check their numbers.

Jeff Pond, Regional Director of Industrial Services at Jones Lang LaSalle, believes that there was still a rush of activity at the end of the year to clear the deck and close off business before the holiday period. However, he explains that it was on a lower scale than usual. “Our clients are still keen to get on with business. I take this as a positive sign that this will carry over into 2009 – there are still many deals yet to be finalised that were being negotiated last quarter,” said Mr Pond.

The research shows gross take-up of industrial space was weak in Q4 2008, reflecting a distinct lack of major new pre-lease deals during the quarter. Approximately 127,000 sqm of take-up was recorded in the major cities around the country, down on an average of 444,000 sqm per quarter in 2008 prior to that.

New supply completions remained solid in Q4 2008 – totaling approximately 700,000 sqm around the country – with the majority of that concentrated in the outer west of Sydney and the west and north of Melbourne. However, all cities recorded above average supply throughout 2008.

As a result of easing occupier demand and sustained new supply, there has been a reported increase in the level of existing vacancy, particularly in precincts that have had higher numbers of speculative development projects. As a result, face rents have effectively stalled in most precincts and incentives for vacant space are reported to have increased.

One shining light has been the performance of the Perth industrial market. Jones Lang LaSalle agents in Perth report a shortage of development land and a lack of opportunities for occupiers – suggesting demand has been outstripping supply. There has also been an active sales transaction market.

Richard Parry, National Director of Industrial Western Australia at Jones Lang LaSalle, states that his business experienced a very good end to 2008 and that going into 2009 there is still good enquiry levels. “It was a strong year for our leasing and sales team. There were several sales that settled in the second half of 2008 that show there was still investor demand for industrial property. The primary source of demand has been from local private buyers which are cashing out of stocks and cash and seeking stable income returns in property,” said Mr Parry.

Mr Parry cites the $15.0 million sale of a 7,565 sqm facility at 24-28 Wheeler Street, Belmont by Coates Hire to Sanzone on a 7.00% initial yield as evidence of this. Another Q4 2008 sale was Becton Property Group selling 92 Robinson Road, Belmont to Morara Pty Ltd for $9.25 million on a
7.57% initial yield.

Looking further ahead, the national supply pipeline is tailing off as projects are delayed or postponed. There is currently 1,225,000 sqm of projects under construction around the country and due for completion in 2009. At present, pre-commitment for this stock is around 63%. It is likely that many new projects in planning stages will not commence construction, so overall 2009 will be a relatively slow construction year in comparison with 2007 and 2008.

Jones Lang LaSalle believe this will present an opportunity for long term private land holders to provide an avenue for new pre-lease and design and construct deals due to their inherent lower land holding costs.

The majority of new supply currently under construction and due to complete this year is located in Sydney (516,000 sqm) and Melbourne (360,000 sqm). In Brisbane another 167,000sqm is currently being developed and in Perth there is another 102,500 sqm currently under construction for 2009 completion with a 78% pre-commitment rate.

Total industrial sales transactions of $208.4 million were recorded during the fourth quarter of 2008 (sale price >$5 million). That brings the total sales transactions for 2008 to $1.36 billion. This compares with $4.73 billion in 2007.

Nick Crothers, National Industrial Analyst at Jones Lang LaSalle, said that private buyers dominated the industrial market in 2008. “We expect this pattern to continue, with private buyers showing strong interest in opportunities in the industrial sector. There are also early signs the overseas investors may become active purchasers of Australian industrial property in 2009,” said Mr Crothers.