A new report from Centuria Capital Group goes into details about the five major market movements that will affect industrial property in combination, namely how the Australian infrastructure investment boom set to peak in 2020, combined with new trends in e-commerce, manufacturing, logistics, and location, together signal both change and good news for commercial real estate – and industrial in particular.
Industrial property has been the most in-demand real estate sector globally for the past two years, and the combination of domestic and international demand for properties in Australia has seen sustained growth in asset values and rents.
The report looks into the factors driving returns from industrial real estate in Australia, and explains why the outlook for the sector is increasingly positive. Prime industrial rents in Sydney are predicted to increase by 7.8% - 12.5% over the next three years, while yields are likely to tighten by 15-25 basis points and values likely to increase by 10.5%-15.2%.
There are economic and social forces at play, providing significant tailwinds for industrial property. With infrastructure spend peaking next year – and a strong link between infrastructure spend, the economy and industrial property – infrastructure investment will make a significant difference to demand for industrial assets.
The current infrastructure programme is different from the last major spend on the M7, which opened up new land and allowed for new cheap industrial property to be built cheaply in the newly-serviced areas – creating a net negative for industrial property. The current spend, conversely, is happening inside the band – on transport in particular. The consequences for industrial property are likely to be very different. Not only is no new land being ‘opened up’ but industrial space is being taken out of the market to allow for the light rail – reducing supply and pushing up prices. According to the latest figures, this is already happening – despite our weaker economy.
E-commerce’s role in industrial property’s positive fundamentals has also been apparent for some time, as it has fuelled increased demand: e-commerce has changed retailing, and still has some way to go – penetration in Australia is far below that of the USA and the UK. 5.6% in Australia compared with 11% in the USA and 22% in the UK. For every sqm lost in bricks and mortar retailing, 3sqm of warehousing is required. But it is also one of several drivers that have created a global focus on logistics and the importance of supply chain management as a competitive advantage, as well as boosting ‘clean’ manufacturing
Customers’ demand for fast delivery, so-called ‘last mile logistics’ has been identified as a key differentiator, and means that warehouses located too far from consumers are less in demand than smaller warehouses closer in.
In fact, Blackstone, the largest global private equity investor and the largest office, hotel and multifamily property owner in the world, recently described logistics as its “highest conviction global investment theme” – making it clear there is strong support for the sector in every quarter.
Meanwhile, clean manufacturing is on the rise – automation, robotics and AI are helping Australian manufacturers control two of their long-standing challenges, high labour costs, the need for scale in a small market and distance to market.
Anthony Pratt, Chairman of global packaging company Visy is now Australia’s richest man – as a result of demand for packaging and his investment in clean manufacturing. In all, Australian industrial property is on the precipice of strong growth. You can read the full report here to find out more.
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