Holden closure, manufacturing slowdown hitting Adelaide economy: HTW
The industrial market has been flat for several years and the effect has been a sporadic performance by the entry-level market at best, according to valuation firm Herron Todd White’s May update.
The General Motors Holden (GMH) car manufacturer is set to shut the doors of its Elizabeth plant in October 2017, ending 60 years of construction in Australia.
This decision by GMH following the federal government’s policy shift to no longer support the industry as well as the problems facing almost all forms of general manufacturing in South Australia are having flow-on effects through the broader economy.
One positive has been the securing of defence construction contracts. After the completion of the Air Warfare Destroyer (AWD) construction contract, the Future Frigates programme will commence in 2020 with an estimated spend of circa $35 billion.
Following this in 2022 is the Future Submarine project, comprising 12 submarines at a spend of circa $50 billion. The projects are expected to provide over 2,000 jobs.
In addition, the South Australian government has significantly increased its expenditure on infrastructure projects, add HTW.
In 2015/16 the budget was $1.8 billion which has increased to $2.2 billion in 2017/18.
The projects are:
• Darlington Upgrade
• Anzac Highway to Darlington
• River Torrens to Anzac Highway
• Regency Park to Torrens Road
• South Road Expressway
• Northern Connector
The combined effect of the defence contracts and the infrastructure expenditure is going some way to soften the blow but the fallout to the South Australian economy has been harsh.
Some analysts are reporting recovering demand for blue-chip investment assets with strong long-term lease covenants but this is not having an impact on entry-level demand.
The demand within precincts such as Wingfield, Dry Creek and Cavan in the north and Edwardstown, St Marys, North Plympton and Lonsdale in the south is far more tied to locally based demand and supply issues.
The low interest rate environment is making renting less attractive but the subdued market conditions coupled with low interest rates are making selling equally unattractive. Agents are reporting that owners are reluctant to sell due to the absence of alternative opportunities in a generally flat market. The result is low transaction numbers and few opportunities.
The climate is tough for first time investors in the industrial arena. The opportunities are few and far between but the secret may lie in buildings that have flexible alternate use opportunities.
“While you will have to accommodate conversion cost and heavily incentivised leasing arrangements in your pricing, the result may be revitalising an otherwise economically obsolete property,” says HTW.