Industrial, logistics surprise performers in Australia's commercial property market: CBRE

The industrial and logistics sector has emerged as the surprise performer of Australia’s commercial property market, with rental growth and projected growth in 2017 making investors confident about the sector, according to commercial real estate firm CBRE.

Strong levels of consumption and investment spending is supporting goods demand in major markets across the country, providing a strong basis for rental growth in 2017, says CBRE’s Industrial and Logistics, Q4 2016, MarketView report.

In the final three months of 2016, the industrial and logistics sector recorded positive quarterly rental growth of 0.5 percent nationally, underpinned by strong gains in Sydney, it said. 

The figures point to the beginning of a growth period for the sector, said CBRE’s senior managing director, Industrial & Logistics, Pacific, Matt Haddon.

“The tide has turned, with the latest quarterly rental growth and projected growth in 2017 injecting confidence into the sector, which, despite mixed economic conditions, has continued to succeed,” Haddon said. 

“It’s well documented that the manufacturing sector is declining – and has been for years. Gains in consumption and investment spending are where our focus needs to lie, with this sector of the market driving future occupier demand growth.” 

Reduced supply in 2016 is also expected to stimulate rental growth, with just 433,000 sqm released in the December quarter – 34% lower when compared to the same period in 2015, the report says.

In terms of deals, Victoria recorded its strongest year on record in 2016, with $1.92 billion in assets changing hands – representing a 15% increase from 2015. 

The report shows $394 million in property transactions during the last three months of 2016 helped propel the Victorian market to its strongest position on record. 

CBRE senior research manager Kate Bailey said a number of high quality assets and portfolio sales had underpinned strong transaction activity in Melbourne. 

“In 2016, there was an imbalance of available premium assets and large scale opportunities to meet demand in most locations across the country – with the possible exception of Melbourne,” Bailey said. 

“Similar drivers were responsible for a slowdown in offshore investment, with portfolio sales the key driver of foreign investment in 2016.” 

Nationally, $4.831 billion in industrial & logistics assets changed hands during 2016 – marginally down from a record $5.267 billion in 2015, due to the available stock shortfall.

New South Wales recorded $1.559 billion for the year, followed by Queensland with $537.67 million, $617.2 million in Perth, $146.05 million in South Australia and $31.25 million in the ACT. 

“Global capital remains highly focused on this strongly performing segment of the commercial market,” Haddon said. 

Haddon said further compression of yields in major markets during 2016 indicated that investors were anticipating both occupier demand and rental growth in the sector. 

In Q4, super prime average yields compressed a further 10 basis points to reach record lows of 6.9% nationally, driven by a low of 6.0 percent in Melbourne, 6.1 percent in Sydney and 6.5 percent in Brisbane.

Haddon said current market conditions pointed to a strong year for the market. 

“Current activity levels suggest that an increased number of opportunities will be available for investors in the first quarter of 2017, compared to the same period 12 months ago.”