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News release

Australia

Industrial sector setting up for strong second half

Industrial sector activity in the first quarter of 2014 was lower relative to the strong finish to 2013


​AUSTRALIA, 7 MAY 2014 – According to JLL, the Australian industrial property sector is building toward a robust investment sales environment and improving underlying fundamentals in the second half of 2014.

The volume of industrial transactions in the first quarter of 2014 was reasonably high at almost $800 million. This compared to a strong fourth quarter in 2013, which saw $1.47 billion of sales transactions.

JLL’s Australian Head of Industrial, Michael Fenton said, “There have been fewer off-market transactions with a number of vendors delaying sales to the back half of the year due to the positive momentum in asset pricing.

“There have also been fewer large property transactions this year, something that had previously been driving sales volumes. There was only one individual asset investment sale above $40 million in Q1 2014.”

JLL Research shows that there were several multi-asset deals that allowed investors to unlock scale. These include: 

Pellicano Group selling a half share in a portfolio of assets at their Dandenong South M1 and M2 Industry Park for an estimated $76.0 million to AMP Capital Investors;
PropertyLink buying two Brisbane properties from the DEXUS Property Group for a combined $62.5 million; 
Fife Capital buying a portfolio of six assets from PrimeWest in Melbourne and Perth for $81.3 million.

Michael Fenton believes that further portfolio transaction activity could occur in the second half of this year as some landlords look to recycle capital into other areas of their business. 

“This is partly in response to a strong pricing cycle and partly due to individual investment group’s broader strategies. What we are seeing is that investors are targeting scale. Portfolio investments offer a unique - but scarce - opportunity to build scale quickly,” said Mr Fenton.

“We continue to see evidence of yield compression, particularly in Melbourne and Sydney markets in which wider spreads had been evident in recent years. Vendors have taken note of recent sales evidence and price expectations have shifted significantly in the last six months in Sydney and Melbourne.”

“Properties with long dated leases in core locations continue to be highly sought after, though investors have compromised and pushed pricing higher on lower quality assets in traditionally inferior locations, confirming price pressure is now broad-based,” said Mr Fenton.

Head of Industrial Research - Australia, Nick Crothers said, “Leasing activity was more subdued last quarter, particularly in Brisbane and Perth. A lower level of pre-lease activity was evident last quarter also. So at a headline level, leasing demand was softer in the first quarter. 

“Meanwhile, the development market remains active and competitive in most markets, meaning occupiers are being attracted to new developments to consolidate operations and drive efficiencies. As a result, the market rental growth pulse nationally is fairly weak at present, though a cyclical improvement in fundamentals is expected to be more favourable late in the year,” said Mr Crothers.

National industrial transaction volumes.jpg
Source: JLL Research