There’s a perfect storm of soaring demand for industrial property across Australia right now, and according to property experts, it’s not showing any signs of slowing soon.
Spike in warehouse & logistics space
Industrial space was already in high demand prior to the COVID-19 pandemic. However, the accelerated growth of e-commerce and restructuring of supply chains that ensued since its emergence has caused a further sharp spike in requirements for warehouse and logistics space across Australia.
Companies seeking to take advantage of the low-rate environment and acquire their own industrial premises rather than renting, and government-driven infrastructure developments are also driving tenant-demand across regional locations.
Vacancy rates at historic lows
As a result, the national industrial vacancy rate has fallen to a historic low of 2.24%, reaching just 1.4% in Sydney and 1.54% in Melbourne, according to a new CBRE report.
“In 20 years, I have not witnessed such vast volumes of leasing enquiry,” says Cameron Grier, CBRE’s regional director of Industrial & Logistics.
“This has not just been restricted to the major east coast markets, with South Australia and Western Australia also experiencing record demand.”
What makes industrial property so appealing to investors?
Industrial property is a specialised segment of the commercial real estate market. It is typically tenanted by large, established companies with specific needs, such as proximity to major transport links, large vehicle accessibility and significant roof and gantry heights.
These companies make excellent tenants as they are generally willing to sign long lease agreements with fixed rental increases, giving investors more stability than a typical residential lease.
They are also often signed on net leases, meaning tenants bear costs, such as insurance and maintenance, that would normally be paid by the owner.
Another strength of industrial property is that the day-to-day operations for industrial property tenants were largely unaffected by COVID-19 lockdowns.
In fact, the manufacturing sub-sector has benefitted from the resulting low Australian dollar, which aids Australian exporters as the cost of our goods and services is lower relative to the US dollar.
We’re also currently seeing higher commodity prices, which means the materials used for manufacturing activities (such as coal, iron ore, copper, and other minerals) are maintaining or improving in price, notwithstanding COVID-19.
These current low vacancy rates are also translating into strong capital appreciation, with industrial land prices in west Melbourne more than doubling over the past four years.
Robust investor demand (and modest supply)
As a result, industrial property is offering competitive yields to investors that are difficult to achieve from many other property sectors and asset classes in the current economic environment.
This is driving significant investor demand for industrial property, which should continue to rise, particularly as investors gear their strategies toward a greater exposure in the industrial sector.
Strong foreign demand for Australian commercial property is also buoying an upward momentum in prices locally. In the first quarter of 2021, $2.4 billion flowed into the sector from abroad, and in April, a portfolio of 45 Australian industrial assets sold for almost $4 billion to Asian investors.
Demand not changing soon
Property experts predict this soaring demand for industrial property won’t decline soon.
CBRE forecasts that an additional 2,500,000 sqm of industrial space will be required in Australia over the next five years to support the growth of online shopping alone.
“E-commerce last year experienced five years of growth in just 12 months and now accounts for around 13% of all retail sales in Australia,’’ notes CBRE’s Industrial and Logistics Vacancy Report H1 2021.
“But Australia still has a long runway for growth in this area to catch other Asia-Pacific countries that range between 20% and 40%. This, coupled with the fundamental rethink of how occupiers deal with inventory levels, has set up 2021 as a great year for owners of industrial and logistics property.’’
How to capitalise on the industrial property boom
The relatively high capital values of industrial assets make it challenging for many investors to participate in industrial property investment.
Professionally managed property trusts provide investors with an opportunity to invest in this high-performing asset class without committing substantial capital.
In property trusts, investors can buy ‘units’ in the trust, which purchases a property or several property assets and manages the associated administration, maintenance and rent collection on your behalf.
They are designed with the aim of paying investors regular distribution payments throughout the life of the trust derived from rental income from the trust’s investments. Property trusts also offer the opportunity for potential capital growth at the end of the investment term when the property is sold. Please note, distributions are not guaranteed, nor is the return of initial capital invested.
At Trilogy, our Trilogy Industrial Property Trust aims to provide investors with stable and regular income and the opportunity for capital growth over the long term from a portfolio of Australian industrial property assets.
This article is sponsored content. The supplier of this content has a commercial arrangement with Switzer Financial Group.
This article is issued by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) as responsible entity for the Trilogy Industrial Property Trust (Trust) ARSN 623 096 944. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 1 July 2021 for the Trilogy Industrial Property Trust ARSN 623 096 944 available at www.trilogyfunds.com.au. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy are not bank deposits and are not government guaranteed
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