Adelaide industrial sales on track to beat 2018: Knight Frank

Adelaide industrial sales on track to beat 2018: Knight Frank
Adelaide industrial sales on track to beat 2018: Knight Frank

Buyer demand for industrial property in Adelaide has been very strong so far in 2019, with total sales nearly triple that recorded for the same period in 2018, according to the latest research from Knight Frank.

The Adelaide Industrial Market Overview August 2019 found in 2019 total sales for industrial properties above $5 million is currently $140.08 million, significantly higher than the same period in 2018, which was $49.35 million.

Knight Frank Research Analyst SA Yee Ng said total sales in 2019 are expected to be higher than 2018, which totalled $261.93 million, particularly with more major potential transactions in the pipeline including Stockland divesting the Port Adelaide Distribution Centre for circa $80 million to a Melbourne Based Fund, Quintessential.

Ng said buyer demand for industrial property in Adelaide was coming from investors, as well as owner occupiers, with stimulus in the market providing the impetus for tenants to become owners.

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Adelaide industrial sales on track to beat 2018: Knight Frank

“The total sales value so far this year was boosted by investors, with the circa $55 million sale of the 122.5 hectare General Motors Holden site to developer Pelligra Group, which finally settled in January after an extended settlement, and the sale of the former steel fabrication site in Gepps Cross to Charter Hall for circa $35 million, which is currently being redeveloped into a distribution centre for Metcash,” he said.

“However, the historically low cash rate, coupled with the abolition of stamp duty on commercial property, has increased demand for owner occupiers to purchase their own facilities, and has had a positive impact on the number of transactions for industrial properties above $5 million.

“South Australia also remains an attractive value proposition for investors seeking higher income returns as average prime yields across the eastern seaboard are generally more than 100 basis points firmer than in Adelaide.

“Industrial yields have shown a continual firming bias over the past six months and are likely to continue firming, given the value proposition and improving demand on offer in South Australia.”

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Adelaide industrial sales on track to beat 2018: Knight Frank

The Knight Frank report found that as at July 2019, average blended prime yields for industrial property in Adelaide are ranging from 7.25% to 8.00% for all precincts, and averaging 7.77%. Meanwhile, the average blended secondary yields are ranging from 8.50% to 9.25%, and averaging 9.04%.

Knight Frank Sales and Leasing Executive SA Garry Partington said fully leased industrial property with strong lease covenants in well-located areas continued to attract strong interest, particularly from interstate and off-shore buyers.

“Over the past 12 to 18 months there has been an increase in the number of transactions for properties above $20 million,” Partington said.

“The low cost of capital is likely to continue to attract more investment into the property market, as will the higher income returns available in the Adelaide industrial market.”

With occupiers increasingly favouring purchasing a facility over leasing, leasing transaction volumes remain low, with rents steady over the past six to 12 months, according to the research.

“There has been limited leasing activity over the past six months but we expect it to pick up over the remainder of 2019,” said Parlington.

“The most sought after properties for tenants in Adelaide are those within inner metropolitan areas with good access to major transit routes, with the majority of leasing transactions being concentrated in the inner north, largely due to the size of the precinct.

“The outlook for tenant demand is looking positive, with several briefs for space in the market for office/warehouse accommodation ranging from 3,000 square metres to 10,000 square metres.”

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Adelaide industrial sales on track to beat 2018: Knight Frank

Notable requirements are from industries including logistics (circa 10,000 square metres), building construction (circa 10,000 square metres), pipe manufacturing (circa 3,000 square metres) and electrical manufacturing (circa 3,000 square metres), according to the Knight Frank report.

Ng said projects from the defence and manufacturing industries would ramp up in 2020 and boost South Australia’s economy, which would have a flow on effect to the industrial property market.

“The closure of the General Motors Holden site in Elizabeth in 2017 resulted in job losses across the state, but new owner Pelligra has secured tenants such as Genis Steel, SA Power Networks, Sonnen and Levett Engineering, which will create jobs.

“In addition, Whyalla steelworks owner Sanjeev Gupta of the GFG Aliiance plans to revive vehicle manufacturing in Australia by building electric cars. The location of the manufacturing site is unknown, however Victoria and South Australia are being canvassed for potential sites, due to their history of vehicle manufacturing.

“Besides that, the defence industry has made a positive impact on the South Australian economy, resulting from the $35 billion Future Frigates contract with BAE Systems.

“Small and medium enterprise such as Redarc Electronics have enjoyed the flow on contracts from defence projects.”

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Adelaide Industrial

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