Adelaide industrial property market recovering: HTW Industrial

The industrial property market across South Australia is expected to continue its recovery throughout 2019 as the market continues to be sustained by government investment in both the healthcare and renewable energy industries, according to the latest report from Herron Todd White (HTW).

The property valuation firm found investor sentiment has recently shifted from the retail to the industrial sector, mainly due to slowing trade growth within specific retail markets as retailers continue the fight against online shopping.

In contrast, warehousing and manufacturing benefits from the increase in online shopping, as companies require more warehousing space to facilitate the transport, manufacture and storage of goods.

Investors and major real estate investment trusts are looking to industrial property, as retail sectors such as department stores and clothing outlets recorded negative retail trade growth through the latter part of 2018 and early 2019.

HTW's property valuation experts stated: "Within the South Australian market, property remains tightly held in the sought-after northwest and inner-west industrial precincts.

"Limited sales of industrial properties occurred in these areas over the first half of 2019, making it hard for investors and owner-occupiers to enter the market.

"The majority of current industrial investment opportunities are available in outer suburbs such as Lonsdale and Edinburgh, which are 26 kilometres south and 35 kilometres north of the CBD respectively.

"Property remains tightly held in the north and western industrial sectors, with 14 sales of industrial use land in the first half of 2019 according to current sales data.

"The current low interest rate environment and recent cut in rates has resulted in further compression in property rents and yields."

Premium industrial space across the nation is currently fetching yields of 6.5%, while secondary space is generating yields of roughly 7.5%.

The Adelaide market is slightly better, with premium space measuring yields of 8% and secondary space nine%.

There has been no significant change in these figures since HTW's previous update in April.

Looking to affordable investments within the Adelaide industrial market, current offerings remain scarce amidst the shortage of recently completed industrial developments.

"Entry level stand-alone sheds within the north and innernorth industrial precinct are roughly $320,000 to $350,000, which would net the owner 305 square metres of industrial floor space in the northern suburb of Edinburgh and 180 square metres in the inner-northern suburb of Wingfield.

"Similarly, industrial investors can acquire a warehouse in the southern suburb of Lonsdale for $335,000.

"For the investor looking to enter the more popular west or inner-west industrial precincts, a warehouse and office in Marleston is currently on the market for $575,000.

"An industrial investor however can acquire a unit or a shed in these areas for almost half the price; sheds in Lonsdale are on the market for $175,000 for around 140 square metres of space, while a higher quality and larger unit (175 square metres) in the northern suburb of Mawson Lakes would set the purchaser back $275,000."

There have been no major shifts in industrial rents throughout the first half of 2019

Net rental levels for premium industrial space in the north are currently between $60 and $90 per square metre, $70 to $110 in the inner-north, $90 to $140 in the inner-west precinct and $60 to $80 in the south.

Slight upward pressure on rental growth is forecast throughout the latter half of 2019, as infrastructure investment and a decline in unemployment are expected to buoy the rental market for industrial property.

"The property market as a whole is predicted to stabilise throughout the remainder of 2019 as a Liberal government settles in for a new term.

"Investment in healthcare and renewable energy should fuel the demand for industrial space in South Australia as the market looks to recover from recent lows.

"Both the Darlington upgrade and the Northern Connector are expected to finish late this year, providing an upgrade to major freight and transport routes in the north and south of South Australia."