South African fund invests $26.9 million in NSW industrial properties
South African listed Investec Australia Property Fund has acquired two industrial properties in Newcastle and western Sydney for a total of $26.9 million.
The sale come at the end of a busy year for industrial property transactions. Demand for Australian industrial assets is strong with investors attracted to the high yields and income return.
Commercial real estate agency JLL predicts the total value of industrial property transacted in 2014 could hit a record high, exceeding the $4.4 billion worth of properties that changed hands in 2007.
In the first nine months of 2014, $2.9 billion worth of industrial properties had already sold, which was 40% more than at the same time the previous year, JLL’s research shows. A further $1.6 billion of potential transactions were expected to exchange or settle before the end of the year.
Sydney was the strongest investment market for industrial property across Australia, making up 47% of sales in 2014, JLL’s research shows. Demand was shifting away from assets in Perth and Brisbane, towards Sydney and Melbourne.
Property funds, like the Investec Australia Property Fund, were the most active buyers by number of transactions in Sydney’s industrial market in the year to September 2014, Savills’ research shows. Over that 12 month period, 17 industrial assets in Sydney sold to property funds.
By value, trusts were most active in Sydney, transacting $785 million worth of industrial property, or 42% of value, Savills’ research shows.
The Investec fund has acquired $147.4 million worth of properties over the past 12 months, bringing its portfolio to nine industrial properties and five office properties.
The two latest acquisitions were made at a blended yield of 7.92%.
Competition for industrial assets in Sydney has caused average yields to tighten. Yields on prime industrial assets now range from 7.25% to 7.75%, 50 basis points less than at the same time in 2013, Savills reports.
Yields on secondary industrial tightened by 25 basis points in the September 2014 quarter and Savills anticipates further pressure on yields as lack of prime investment stock forces investors to look for well leased secondary assets instead.
Investec’s purchase at Wetherill Park in Sydney’s west has 11 years remaining on the lease with an option for a further five years and average contracted annual rental growth of about 3%.
The lease on the Newcastle property runs until January 2021, with a contracted 3.75% rental growth and an option for a further 10 years.
IAPF chief executive Graeme Katz said had recently paid down all of its debt and was was in a strong position to pursue acquisitions.
“We are actively seeking opportunities to grow and diversify the Fund’s asset base, enhance value and contribute to sustainable income growth for our investors,” he said.
The fund was listed on the Johannesburg Stock Exchange in October 2013, allowing South Africans to directly invest in Australian commercial property.