Brisbane’s industrial market, strata-titled units provide good entry point
For first time industrial property investors, the entry point into Brisbane’s industrial markets is typically strata-titled industrial units and small freestanding properties, according to valuation firm Herron Todd White’s May commercial update.
In more recent times, the development of workstores (very small industrial units) has enabled market entry at very low price points. These are emerging in the market with units in the vicinity of 60 to 100 square metres with entry-level pricing of sub $300,000.
This compares to industrial units and freestanding properties which now typically start at above $500,000.
Workstore developments are emerging throughout Brisbane’s industrial precincts and include locations such as Enoggera, Tennyson, Geebung, Tingalpa, Eagle Farm and Northgate.
Price points for workstores and small strata titled industrial units generally range from $2,200 per sqm to $3,300 per sqm. Investment opportunities also exist for astute investors to acquire B or C grade properties within core locations and value add through refurbishment or reconfiguration.
The industrial investment market has been relatively strong in contrast to the flat leasing market. The prime leasing market is, however, improving slowly although incentives are expected to continue to rise, say HTW.
“Future rental growth will largely depend on economic conditions, future supply and business confidence,” says the note.
Lease up periods for secondary assets are now up to 12 months. Across Brisbane, prime grade net face rents are ranging from $104 per square metre in the southwestern corridor to $115 per square metre in the Trade Coast precinct. Incentives for prime grade products are averaging 15.7 percent.
Demand for prime grade stock has been strong with yields across Brisbane reflecting between 6.25 percent and 7.25 percent. Prime yields have tightened by circa 100 basis points over the past 12 months, whilst secondary grade yields have tightened by circa 25 basis points. Yields for secondary properties reflect a range of 7.95 percent to 8.6 percent. Approximately 241,500 square metres is expected to be added to the industrial market by the end of 2017 in the Trade Coast precinct and the southern precinct.
“We see 2017 as a good time to invest in Brisbane’s industrial property market,” say HTW.
It outlines a range of factors including:
• The limited pipeline of new supply, limiting competition and providing price stability;
• The low interest rate environment at present, which is supporting loan serviceability;
• Brisbane’s expected growth both in infrastructure investment and economic productivity – the duplication of the runway at Brisbane Airport is one example. This will bolster the productive capacity of the region and will have flow on effects for Brisbane’s industrial property markets;
• High land values which limits speculative activity; and
• Brisbane’s relative affordability compared to other capital cities (particularly Sydney and Melbourne).
Location and building quality are critical in the current market. In terms of location, precincts offering ease of access to major arterial roads and highways throughout 2017. Prime investment opportunities are scarce indicating that further yield compression is possible in 2017.
“We do however consider that we are getting towards the bottom of the yield compression cycle. Nonetheless, there is ongoing strong demand from investors across all price levels and we anticipate on the whole that value levels are likely to hold firm for the foreseeable future,” say HTW.
On the quality measure, prime buildings offering modern tilt panel construction, higher internal clearances (above nine metres) and drive through or around access are more appealing to occupiers and investors compared to sheet metal buildings with lower clearances and inferior access.
For investors, the third critical element is the quality of the leasing covenant, including tenant strength, lease term and rent review profile. There is very strong demand when investments tick the right boxes. A low interest rate environment will continue to support sales and leasing activity within the sector.
