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News release

SYDNEY

Pre-lease market gains momentum as big occupiers make their move

Jones Lang LaSalle’s Q2 statistics show supply at historic lows while demand improves


SYDNEY, 11 AUGUST 2010 – Solid levels of gross take-up were recorded in Jones Lang LaSalle’s Q2 2010 research statistics, which show large occupiers are active in the pre-lease market, while this year we expect to record the lowest volume of new stock to hit the market since 2001.
 
Quarterly highlights:
 
• Gross take-up of industrial space solid in Q2 2010 at 402,900 sqm
• 2010 will have the lowest level of new supply since 2001
• Only 199,800 sqm of new industrial space was constructed inQ2 2010
• There is 609,600 sqm under construction  and scheduled to complete in 2H 2010
• Rents being supported by rising demand and falling supply in most monitored precincts
• Sales activity picked up sharply with $332.0 million sold in Q2 2010 compared to $108.6 million in Q1 2010
 
Michael Fenton, National Head of Industrial at Jones Lang LaSalle believes that sales will pick up further yet with the Colonial managed Direct Property Investment Fund (DPIF) industrial portfolio currently being marketed by Jones Lang LaSalle and other funds likely to be selling down industrial assets over the next 12 months.
 
“Industrial investors are buying with confidence.  The industrial sector has some good buying opportunities with yields for prime assets having softened on average 175 basis points since the peak of the cycle. Yields are now tightening up again and buyers are aware pricing has passed the low point in the cycle,” said Mr Fenton.
 
Gross take-up of industrial space was 402,900 sqm in Q2 2010. This is in line with the 437,200 sqm recorded in Q1 2010 and caps off a very strong start to the year.
Nick Crothers, National Industrial Analyst at Jones Lang LaSalle states that the pick up in take-up in 2010 is being driven by pre-lease and purpose-built Design and Construct deals by big users in the retail trade and transport sectors (67% of all take-up in 2010 has been  pre-lease or D&C).
 
“This highlights that developers are back in business and able to meet the demand by big users for newly built facilities – this was not happening during the previous two years due to the GFC,” said Mr Crothers.
 
“This bodes well for the industrial sector because the big occupiers and big landlords/developers are now clearly moving forward with confidence.”
 
The majority of the 840,100 sqm of gross take-up activity in the first half of 2010 was in Melbourne (37%) followed by Sydney (31%), Brisbane (16%), Perth (6%) and Adelaide (3%).
 
Some of the largest occupier moves recorded include:
• Woolworths (Big W) at Hoxton Park (Sydney Outer South West) 90,000 sqm;
• ALDI at Beresfield (Newcastle Region) 56,100 sqm;
• Woolworths (Dick Smith Electronics) at Hoxton Park (Sydney Outer South West) 44,600 sqm;
• ALDI at Beresfield (Newcastle Region) 56,100 sqm;
• Best and Less at Eastern Creek (Sydney Outer Central West) 37,000 sqm;
• Sigma Pharmaceuticals at Laverton North (Melbourne West) 27,100 sqm;
• QLS at Dandenong (Melbourne South East) 22,000 sqm;
• New Food Coatings at Wentworth Park (Sydney Outer Central West) 17,100 sqm.
 
The supply pipeline has been diminishing since the middle of 2008. The low point in the cycle is likely to be some point this year as new project starts are now picking up. This means there is a growing demand and supply imbalance that so far has been supporting rental levels.
 
There was 199,800 sqm of new supply completed in Q2 2010. The majority of supply in Q2 2010 was in Sydney (113,700 sqm), Melbourne (56,000 sqm), Brisbane (10,900 sqm), Perth (10,000 sqm) and Adelaide (9,200 sqm). It is notable that Sydney led supply in Q2 2010 after no projects were completed in the first quarter of the year.
 
There is now 604,600 sqm under construction that is scheduled to complete in the second half of 2010 – 82% of which is pre-committed. Given this, 2010 is likely to have the lowest level of new industrial construction completed since 2001. (As of the end of June, only 136,900 sqm of projects were under construction for 2011 delivery).
 
Mr Fenton said, “Demand for industrial property is likely to continue its upward trend for the balance of 2010 and into 2011.  Tenants are now able to take advantage of a more competitive leasing environment as many institutional land owners have now contained their debt levels and recapitalised and can therefore focus on converting idle land banks into income generating product.  This was not the case throughout the GFC where the supply tap was effectively turned off principally due to the inability to obtain debt funding for projects.
 
“With existing supply being at historically low levels in most capital cities and all new supply being pre-committed we foresee an environment of rent stability and even rental growth in certain markets in the short term,” said Mr Fenton.