Industrial giant rides online retail surge to major lift in values

Greg Goodman. Picture Renee Nowytarger/The Australian
Greg Goodman. Picture Renee Nowytarger/The Australian

The dramatic switch towards online shopping prompted by the coronavirus pandemic is driving a sustained lift in the value of industrial property, as retailers take up more warehouse space to deliver goods to customers.

Big investors are also chasing an exposure to the area and in one of the latest moves, global industrial powerhouse Goodman Group has just raised $1bn of fresh equity for its main wholesale trust.

The fund is the largest such vehicle in Australia and will assist with Goodman’s expansion, which includes new space for the likes of online retailer Amazon, for which it is building a robot-run site in Sydney.

Goodman boss, billionaire Greg Goodman, is, however, taking a cautious stance, and will first wind down debt in the fund.

It will then be well-positioned to expand and has first rights over Goodman’s extensive development pipeline on the outskirts of major cities on the eastern seaboard.

The group is also being challenged by Charter Hall, Dexus, international groups like Logos and ESR, and a host of Singaporean groups in building new warehouses.

But the big move to upgrade supply chains, as corporations look to ferret out cost savings, is driving hefty demand, with parcel moving companies also taking up space.

Logistics transactions accounted for about 35 per cent of all real estate deals last month, on UBS numbers, and this proportion may rise as Qube ties up its selldown of the $2bn Moorebank facility to Logos Property Group.

Goodman is also expected to sell half-interests in new Coles and Amazon facilities, which it is developing.

The company has managed to dodge the worst of the worldwide coronavirus crisis as it has focused on domestic goods rather than international flows, which have been more affected by border closures.

It is also benefiting from the bigger split that has emerged in the commercial property sector between under-pressure areas like CBD retail and larger shopping centres, and newer forms of property including modern logistics facilities.

Credit agencies are backing the sector. S&P Global Ratings said the unlisted Goodman Australia Industrial Partnership’s asset portfolio had strengthened materially over the past five years and was well-positioned to generate strong rental growth despite the challenging macroeconomic environment.

“We also expect GAIP to further strengthen its portfolio in the coming years through its ongoing development and asset recycling programs,” S&P said.

Goodman has a 28.9% interest in the trust, which has priority ranking for right of first refusal on all opportunities over the company’s Australian projects.

“We expect GAIP’s rental income to grow in the mid-single digits over the next couple of years, supported by predominantly fixed rental step-ups, supplemented by asset recycling into higher-quality assets developed by Goodman Group,” S&P said.

The equity raising should lower the REIT’s gearing toward the low-20% level over the next 18 months. “Management’s decision to operate with gearing at a lower level is based on its expectation of continued low capitalisation rates that are bolstering asset values,” the ratings agency said.

The equity raising also provides a buffer should the property cycle reverse and asset values come under pressure. S&P said its rating “reflect an expectation that GAIP will ramp up its acquisition activity over the next 18 months”.

The REIT’s focus on warehouses and distribution centre assets, and on tenants in the transportation, logistics, and consumer sectors had “meant minimal” disruption to rental collection during the COVID-19 pandemic.

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