Low interest rates, investor demand compressing yields in Brisbane's industrial market: CBRE

Record low interest rates and rising demand from investors could further compress yields in Brisbane’s industrial market, according to an analysis by commercial real estate firm CBRE.

The firm’s 2016 Q1 Industrial MarketView highlights improving conditions in Brisbane’s industrial market, with the decline in business investment tapering off and production levels forecast at 5.7 percent in 2016. 

Brisbane’s industrial sector continued to witness strong levels of transaction activity,  said Ed Bull, CBRE’s senior director, Queensland Industrial & Logistics.

“The sheer weight of capital looking to enter the market, coupled with the favourable interest rate environment, will fuel demand for core assets backed by secure, national covenants,” Bull said. 

“In light of this, we’re likely to see some yield compression for the right type of assets.” 

Residential construction remains a strong driver of Brisbane’s industrial market, with dwelling approvals over the past 12 months growing by 15.6 percent, while container trade out of the Port of Brisbane also increasing 3.5 percent in 2015. 

In the first three months of 2016, yields for super prime industrial assets in Brisbane remained around 6.50 percent, while prime yields still sit at 7.43 percent and secondary yields at 8.73 percent, said the report.

The rental rates for Brisbane industrial property remained steady over the quarter, with super prime at $116 per square metre, prime at $114 per square metre and secondary at $93 per square metre.

CBRE senior research manager Kate Bailey said the supply pipeline would support continued value growth in the market. 

“Following two years of significant new industrial supply, the pipeline for 2016 is considerably lower – reducing the risk of oversupply and supporting rental growth in the medium term,” Bailey said.

In Melbourne and Brisbane, a respective decrease in supply of 55 percent and 11 percent is forecast, while in the undersupplied Sydney market, 765,000 sqm is due for completion in 2016.

“This reduction in total supply entering the market is expected to encourage rent growth as demand begins to be supported by an improved industrial economy,” Bailey added.