Momentum grows for Australian industrial property

A mega splurge on transportation infrastructure has buoyed overseas investors as confidence in the Aussie industrial market lifts to record highs. 

A report from global property services firm, JLL has revealed Australia remains one of the most popular destinations for cross-border investment, second only to Japan, with more than $2.68 billion injected into infrastructure development from overseas.

The Australian Industrial Investment Review found total transactions, portfolio sales and inbound cross-border capital were all on the rise.

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“The gradual institutionalisation of the sector in Australia has gained impetus over the past four years,” JLL’s head of industrial Australia, Michael Fenton, says.

The report points to the huge levels of infrastructure development as a key factor for the positive swing.

In all, $86.8 billion will be spent on transport projects. More than $47 billion worth of the work is expected to be completed in the next five years.

Our forecasts anticipate this year will be the highest year of supply since 2008

“This will have a profound impact on the industrial market to reduce the operating costs for distributors, raise the implicit value of existing assets and unlock new markets,” Fenton says.

“Australia’s industrial market has undergone a rapid institutionalisation over the past decade,” he says.

“Never has the sector had such high stock of capital invested, or stock of capital looking to be placed,’’ Fenton says.

“Such growth, in part, was a function of the increased offshore demand for Australian logistics assets.”

In 2016, just under a half of all transactions ($2.9 billion or 39%) was capital from direct offshore investment.

The report also revealed:

SYDNEY and Melbourne accounted for more than 68% of the national sales volumes and were the second and fourth largest markets in Asia Pacific;

AVERAGE national prime yields have reached a record low, with record levels set in all state capitals except Perth and Adelaide; and

OFFSHORE investment has grown to 107% per year since 2014 with Australia is the preferred destination in Asia Pacific for industrial cross border activity.

Senior industrial analyst Sas Liyanage says low-interest rates, “robust economic fundamentals” and the drive for income will likely ensure the continued sustainable expansion in supply.

“Our forecasts anticipate this year will be the highest year of supply since 2008,” he says.

“This will be concentrated in Melbourne and Sydney, accounting for 73% of total supply.”