RESEARCH

Population Growth

Aust: 1.6% SA: 0.8% Infrastructure—North to Lonsdale— an additional 3,000m² of As at December 2018 South Corridor advance manufacturing space which will increase the manufacturing capacity by Economic Growth The North to South Corridor is starting to 250% and create jobs for up to an Aust: 1.8% SA: 1.8% come together with the majority of additional 100 workers. projects completed. Current projects March 18 to March 19 underway are the Darlington Upgrade The unemployment rate in SA currently Unemployment Rate and Northern Connector, with expected stands at 5.9%, which is 0.7% higher completion in late 2019. The remaining than the national average as of June

Aust: 5.2% SA: 5.9% sections that are yet to commence are 2019 (seasonally adjusted). This figure As at June 2019 the to Anzac Highway and has improved from 7.3% in April 2017. “Anzac Highway to Darlington”. On Moving forward, this downward trend is Infrastructure Spending completion, the 78-kilometre North-South likely to continue as a number of major SA State Budget Corridor will reduce travel times by projects in the defence and providing a continuous non-stop manufacturing sectors come online. 2019/20: $11.9 billion carriageway from Gawler to Old Engineering Noarlunga. Furthermore, it will also Low cost of capital will Construction improve access to some of the key benefit the property market

Aust: -13.5% SA: 7.8% industrial areas such as Edinburgh Parks in the Outer North. Evidence from sales transactions during March 18 to March 19 CY 2018 suggested that the low cost of Manufacturing is back capital and the abolition of stamp duty had a positive impact on the number of The closure of the 122.5ha General transactions for industrial properties Motors Holden (GMH) site in Elizabeth above $5 million. (Q2 2017) resulted in job losses across the State. The new owner of GMH site, In July 2019, the Reserve Bank of Melbourne based developer Pelligra Australia (RBA) has cut the cash rate to group, has secured tenants such as 1.00% (historical low), and also indicated Genis Steel, SA Power Networks, Sonnen there are more cuts to come in the and Levett Engineering. following months. The downward trend has taken the cash rate from 4.75% In addition, Whyalla steelworks owner (November 2010) to 1.00% (July 2019). Sanjeev Gupta (GFG Aliiance) plans to Hence, it is likely to continue to drive the revive vehicle manufacturing in Australia cost of capital down and attract more by building electric cars. The location of investment into the property market. the manufacturing site is unknown however, VIC and SA are being canvassed for potential sites, due to their Unemployment Rate history of vehicle manufacturing. (Seasonally Adjusted) Australia vs

Besides that, the defence industry has 8.5%

made a positive impact on the SA 8.0%

economy, resulting from the $35 billion 7.5% Future Frigates contract with BAE 7.0% Systems. BAE Systems have recently 6.5% employed more than 80 graduates and 6.0% are expected to employ an additional 100 5.5% 5.0% graduates next year as the project ramps 4.5%

up. Furthermore, small & medium 4.0%

business such as Redarc Electronics

Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Jun-2018 Research Analyst SA have enjoyed the flow on contracts from Jun-2009 defence projects. More particularly, Australia Unemployment Rate (Seasonally Adjusted) South Australia Unemployment Rate (Seasonally Adjusted) Redarc had expanded its factory in

2 INDUSTRIAL AUGUST 2019 RESEARCH

Rents, Incentives & Outlook Recent Leasing Activity Adelaide

Average $95/m² Net Bldg Prime 0.5% p.a growth Term Address Region Rent Area Tenant Date (all regions) 10.0% incentive (yrs) $/m² (m²)

Average $62/m² Part, 113-117 Bedford Street, Gillman IN 118 2456 5 Plasdene Glass May-19 Secondary 0.8% p.a growth 14-16 Pambula Street, Regency Park IN 82 1,285 5 King Furniture May-19 (all regions) 5.67% incentive 30 Charles Road, Beverley IW 75 7,135 5 Advanced Piping Apr-19 Limited leasing activity over the past six months 7 Rosberg Road, Wingfield IN 88 1,713 5 Stoddart Mar-19 Unit 3, 43-55 Produce Lane, Pooraka IN 110 2,807 3 Marlau Mar-19

Leasing transaction volumes remain low Part 41 Barfield Cres, Edinburgh North ON 50g 2,080 3 Wheel & Barrow Feb-19 as a result of the continuing trend of Part 51-85 Morrow Rd, O’Sullivan Beach OS 49 15,456 4 Orrocon Steel Feb-19(r) owner occupation, where in lieu of leasing their property requirements, Unit 8, 3 Selgar Avenue, Tonsley IS 80 1,222 3 Black Mango Dec-18 occupants are favouring to purchase 53-73 North, Dry Creek IN c65 4,319 4 Carpet Call Jul-18 their facilities. This is partly due to the 25 George Street, Green Fields IN 70 4,096 # Apex Steel May-18 historically low cash rate, coupled with the abolition of stamp duty, which further encouraged tenants to become owners. The most sought after properties to lease 10,000m²), building construction (circa Adelaide Industrial Prime Rents are those within inner metropolitan areas $/m² net face, 2009-2019 with good access to major transit routes. 10,000m²), pipe manufacturing (circa By precinct 3,000m²) and electrical manufacturing 160 The majority of leasing transactions have (circa 3,000m²). been located in the Inner North. This is 140 largely due to the size of the precinct in Rents have remained 120 comparison to other precincts. A recent steady leasing transaction occurred at 113-117 100 Bedford Street, Gillman. The tenant, Rents have remained steady over the 80 Plasdene Glass occupies a brand new past 6 to 12 months. Despite this, properties within inner metropolitan office/warehouse of 2,456m², the deal 60 was struck at a face rental rate of $118/ areas with good access to major transit 40

m² p.a. net for an initial term of 5 years. routes have continued to be met with

Jul-09 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-18 Jul-19 Jul-17 steady leasing demand. Average prime Jul-10 incentives remained unchanged at INNER NORTH OUTER NORTH INNER SOUTH Furthermore, Advanced Piping OUTER SOUTH INNER WEST Systems— a supplier of Polyethylene approximately 10%. fittings and piping systems for mining and industrial applications recently Adelaide Industrial Rents Adelaide Industrial Secondary Rents vacated from 5, 7 & 9 Benjamin Street, St $/m² net face, 2009-2019 $/m² net face, 2009-2019 Marys due to expansion. The tenant was Prime vs Secondary By precinct previously occupying a GLA of 1,823m², 110 85 and has since leased 30 Charles Road, 80 Beverley, formerly occupied by Grace 100 75 Logistics and comprises a GLA of 90 70 7,135m². The deal was struck at a 80 65 commencing rental rate of $75/m² p.a. 60 net of GLA for an initial term of 5 years. 70 55 60 50 The outlook for tenant demand is looking 50 45 positive with several briefs for space in 40 40

the market for office/warehouse

Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 accommodation ranging from 3,000m² to Jul-09 INNER NORTH OUTER NOR TH INNER SOU TH 10,000m². Notable requirements are from PRIME SECONDARY OUTER SOUTH INNER WEST industries such as logistics (circa

3

Holden site has finally settled

The 122.5ha General Motors Holden (GMH) site has finally settled in January 2019 after an extended settlement with a due diligence period (approximately 13 months). The site was transacted for circa $55 million to a Melbourne based developer Pelligra Group with a portion (approx. 30%) on a long term leaseback to GMH utilised for parts and service. The Pelligra Group plans to transform the site into a multi-purpose business precinct, known as ‘Lionsgate Business Park’. Since taking possession of the site, Pelligra Group has leased a portion of the site to tenants including Genis Steel, SA Power Networks, Sonnen and Levett Engineering.

$535 million Naval Shipyard is well underway

One of the most significant developments in SA is the $535 million Osborne Naval Shipyard. The property is currently under construction and will comprise four (4) new major buildings, with the largest building being approx. 13,500m² (180m x 75m) and 55 metres in height (equivalent to 14 storey Metcash facility built distribution centre. On completion building). The development is expected (scheduled for mid-2020), Metcash will to be completed by March 2020 and will Another major development is the be relocating their existing premises be utilised for shipbuilding infrastructure former Bianco steel fabrication facility, from Kidman Park. In 2018, Metcash for the $35 billion future frigates project. located at 600 , Gepps entered a long-term agreement with the

Cross. The property has recently majority of the Foodland supermarkets Over the past six months, land values transacted off-market to Charter Hall owners in SA which includes the have remained steady for all precincts. for circa $35 million. Prior to the Romeo’s and the Chapley’s—excluding Despite this, the high underlying land settlement, the vendor had secured an Drakes, which are constructing their value in the inner west has driven a ASX listed tenant (Metcash) with plans own facility in the Outer North. change into a mixed use precinct. to construct a circa 68,000m² purpose-

Recent Land/Development Sales Activity Adelaide

Price Site Area $/m² of Address Region Zone Vendor Purchaser Sale Date ($ mil) (m²) site area 180 & 185 Philip Hwy, Elizabeth South ON 55.00 122.5ha 45 IND GM Holden Pelligra Jan-19 Lot 6 Schumacher Road, Wingfield IN 3.35 23,690 141 IND Renewal SA Private Developer Nov-18 157-165 Cross Keys Rd, Salisbury South ON 12.5 151,900 82 IND Commercial General Straits Real Estate Oct-18 Lot 34 Share Street, Kilkenny IN 11.59 50,277 230 UE Private Straits Real Estate Oct-18 Lot 10 & 22 Schumacher Road, Wingfield IN 5.30 44,190 120 IND Renewal SA Spendless Shoes Jul-18 21-27 Johansson Road, Wingfield IN 1.65 5,502 300 IND Landra Commercial Private Mar-18

4 ADELAIDE INDUSTRIAL AUGUST 2019 RESEARCH

Current Yields & Outlook South Australia remains attractive for Ingham’s reflecting a core market yield investors seeking higher income returns. of 6.28% and a lease term certain of

Average Blended 7.25% - 8.00% 16.1 years. The property was Prime -43bps 12 mths A notable investment sale was the Port purchased together with an office Average Blended 8.50% - 9.25% Adelaide Distribution Centre which building in Canberra (circa $55 million) Secondary -45bps 12 mths located on 25-91 Bedford Street, from Western Australian based fund, Gillman. The property is currently under Ascot Capital. Strong start for transactions contract to a Melbourne Based Fund, above $5 million Quintessential for approximately $80 Prime yields are firming million reflecting a core market yield of YTD 2019 industrial sales transaction circa 9.50%. Industrial yields have shown a continual that exceed $5 million currently stands firming bias over the past six months. at $140.08 million. This is significantly Another notable transaction was the sale As at July 2019, average blended prime higher than $49.35 million this time last of 1118-1146 , yields are ranging from 7.25% to 8.00% year. This was largely due to the sale of Burton. The property was previously for all precincts (average 7.77%). the GMH site and a distribution centre sold in 2014 for $39.5 million reflecting a Meanwhile, the average blended (to be construct) located in Gepps Cross core market yield of 8.43% (excluding secondary yields are ranging from (Metcash). the adjoining sites). More recently 8.50% to 9.25% (average 9.04%). (October 2018), the property transacted Yields are likely to continue firming, Properties above $20 off-market to Singaporean based REIT, given the value proposition and million continue to attract Soilbuild Business Space for $61.25 improving demand on offer in SA. strong interest million, with a “triple net” leased to

Fully leased industrial property with strong lease covenants in well located Adelaide Industrial Sales SA vs East Coast Average Prime Yields 2009 - 2019 by sub-market - >$5 million 2009 - 2019 areas continue to attract strong interest, $350 9.50% particularly from interstate and off-shore 9.00% buyers. Evidence has suggested that $300 8.50% over the past 12 to 18 months, there has $250 been an increase in the number of 8.00% $200 transactions for properties above $20 7.50%

$150 YTD million. This demand is being partly 7.00% driven by the historically low interest rate $100 6.50% environment together with the abolition $50 6.00% of stamp duty on commercial properties.

Furthermore, average prime yields $0 5.50%

2011 2012 2013 2014 2015 2016 2019 2010 2017 2018 across the Eastern Seaboard are 2009 5.00%

INNER NORTH OUTER NORTH

Jul-10 Jul-11 Jul-13 Jul-14 Jul-16 Jul-17 Jul-19 Jul-12 Jul-15 Jul-18 generally in excess of 100 basis points INNER WEST INNER SOUTH Jul-09 OUTER SOUTH LE FEVRE PENINSULA Melbourne Brisbane Adelaide firmer than in South Australia. Hence 10 YR AVERAGE

Recent Improved Sales Activity Adelaide Price Bldg Core Mkt WALE Address Region Vendor Purchaser Sale Date ($ mil) Area (m²) Yield (%) (yrs) Distribution Centre IN c80.00 c167,485 c9.50 N/A Stockland Quintessential U/C Lot 701 Port Wakefield Road, Gepps Cross IN c35.15 TBC N/A N/A Aretzis Group Charter Hall Apr-19 250 Regency Road, Regency Park IN 12.75 6,608 VP VP Footers Structural Detmold Group Apr-19 42-56 , Kilburn IN 10.40 12,174 VP VP IJF Bipco Properties Feb-19 Unit1, 2 & 4, 35-37 Maxwell Road, Pooraka IN 13.60 9,252 6.65 4.0 APD Realside Feb-19 65-85 Deeds Road, North Plympton IW 13.18 12,185 VP VP Ascot Capital Bidfood Jan-19 80-92 Grand Junction Road, Kilburn IN 9.31 6,889 7.73 15.0 A Noble & Son Ltd Peak Equities Nov-18 1118-1146 Port Wakefield Road, Burton ON 61.25 24,324 6.28 16.1 Ascot Capital Soilbuild Business Oct-18 113-117 Bedford Street, Gillman IN 14.00 8,844 7.08 4.4 Frasers Trilogy Oct-18

5

Inner West Inner North Outer North

Land Land Land

Avg <5,000 sqm: $430/m² Avg <5,000 sqm: $233/m² Avg <5,000 sqm: $80/m² Avg 1-5 ha: $270/m² Avg 1-5 ha: $143/m² Avg 1-5 ha: $54/m² Rents: Rents: Rents:

Avg Prime: $122/m² Avg Prime: $92/m² Avg Prime: $71/m² Avg Secondary: $77/m² Avg Secondary: $60/m² Avg Secondary: $48/m² Yields: Yields: Yields:

Avg Prime: 6.75% - 7.75% Avg Prime: 6.75% - 7.75% Avg Prime: 8.00% - 8.75% Avg Secondary: 8.25% - 8.75% Avg Secondary: 8.00% - 9.00% Avg Secondary: 9.50% - 10.50%

• Sales & leasing transactions • Veolia has started to fill the • Positive outlook for the former have been limited over the past 18.7ha low lying site GMH site, with new businesses six months in Inner West. This purchased from Renewal SA setting up on the site such as is due to the market being (Lot 403 Hanson Road, Dry Genis Steel, SA Power tightly held and the high Creek) and plans to build new Networks, Sonnen and Levett underlying land value is driving HQ, a solar farm and waste to Engineering. a change from industrial to energy power plant. mixed use, which is evident through Thebarton (former • Charter Hall & Aretizs Group Coca-Cola site). (JV) plans to construct a circa 68,000m² purpose-built • Notable leasing deals include distribution centre for Metcash 30 Charles Road, Beverley, at Gepps Cross. leased for a 5 years initial term at a commencing rent of $535,125 p.a. net (equivalent to $75/m² p.a. net).

Address: 65-85 Deeds Road, North Address: Unit 1, 2 & 4, 35-37 Max- Address: 1118-1146 Port Wakefield Plympton well Road, Pooraka Road, Burton Price: $13.18 million Price: $13.60 million Price: $61.25 million Sale Date: January 2019 Sale Date: February 2019 Sale Date: October 2018 Vendor: Ascot Capital Vendor: APD Vendor: Ascot Capital Purchaser: Bidfood Purchaser: Realside Purchaser: Soilbuild Business Space Yield: Vacant Possession Yield: 6.65% Yield: 6.28% Comment: The property was pur- Comment: The property transferred off Comment: Sold following off market chased by an owner occu- market in three (3) separate negotiation with a lease pier/sitting tenant following transactions. W.A.L.E of term certain of 16.1 years. an off-market transaction. 4.0 years.

6 ADELAIDE INDUSTRIAL AUGUST 2019 RESEARCH

Le Fevre Peninsula Inner South Outer South

Land Land Land

Avg <5,000 sqm: $110/m² Avg <5,000 sqm: $369/m² Avg <5,000 sqm: $98/m² Avg 1-5 ha: $83/m² Avg 1-5 ha: $253/m² Avg 1-5 ha: $60/m² Rents: Rents: Rents:

Avg Prime: $100/m² Avg Prime: $115/m² Avg Prime: $75/m² Avg Secondary: $70/m² Avg Secondary: $75/m² Avg Secondary: $50/m² Yields: Yields: Yields: Avg Prime: 7.75% - 8.50% Avg Prime: 7.00% - 8.00% Avg Prime: 8.25% - 9.00% Avg Secondary: 9.00% - 10.00% Avg Secondary: 8.25% - 9.25% Avg Secondary: 9.25% - 10.25%

• Le Fevre Peninsula is now • The 61 hectare Mitsubishi plant • Local manufacturers (Redarc recognised as a defence site closed down in 2008. Electronics and Rowlands precinct, in light of the Since then the area has been Metalworks) located at submarine and frigates to be redeveloped into an innovation Lonsdale have enjoyed flow on built at Osborne district called “Tonsley”. contracts for defence projects. Tonsley currently has more • The $535 million shipbuilding than 70 business including yard is well underway and is TAFE, Flinders University, ZEN

scheduled for completion by Energy and Siemens. March 2020. Once completed, the development will comprise • Limited sales, however there is four (4) new major buildings, high demand for industrial with the largest building being property under $1 million, with approx. 13,500m² and 55 the majority of buyers being metres in height (approx. 14 owner occupiers. storeys high).

Address: Lot 102, Coghlan Road, Address: Unit 8, 3 Selgar Avenue, Address: Portion 51-85 Morrow Outer Harbor Tonsley Road, O’Sullivan Beach Price: $8.75 million Rent: $80/m² p.a. net Rent: $49/m² p.a. net

Sale Date: August 2018 Start Date: December 2018 Start Date: February 2019 (Lease Extension) Vendor: Frasers Logistics Tenant: Black Mango Tenant: Orrocon Steel Purchaser: Qube Logistics Landlord: Private Landlord: Private Term: 3 Years Comment: Sold off market to the sit- Term: 4 Years ting tenant. The property Comment: Nil has direct access to the Comment: The original lease com- national rail network via a menced February 2014 siding agreement with ARTC.

7

RESEARCH Yee Ng Research Analyst, SA +61 8 8233 5217 [email protected]

Ben Burston Partner, Chief Economist +61 2 9036 6756 [email protected]

INDUSTRIAL Garry Partington Sales & Leasing Executive, SA +61 8 8233 5282 [email protected]

NATIONAL Rob Salerno Partner, Head of Industrial, Australia +61 2 9761 1871 [email protected]

Greg Russell Partner, Head of Industrial Investments, Australia +61 7 3246 8804 Definitions: [email protected] Prime Grade: Asset with modern design, good condition & utility with an office component 10-30%. Located in an established industrial precinct with good access. VALUATIONS & ADVISORY Secondary Grade: Asset with an older design, in reasonable/poor condition, inferior to prime stock, James Pledge with an office component between 10-20%. Partner, Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market Head of Valuation & Advisory, SA income is divided by the adopted value/price which has been adjusted to account for property +61 8 8233 5212 specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure, [email protected] current vacancies, incentives, etc). WALE: Weighted Average Lease Expiry Nick Bell Partner, Valuation & Advisory, SA +61 8 8233 5242 [email protected]

Tom Walker Knight Frank Research provides strategic advice, consultancy services and forecasting Associate, Industrial, SA to a wide range of clients worldwide including developers, investors, funding +61 8 8233 5239 organisations, corporate institutions and the public sector. All our clients recognise the [email protected] need for expert independent advice customised to their specific needs. SOUTH AUSTRALIA Guy Bennett Partner, Head of Institutional Sales, VIC & SA +61 8 8233 5204 [email protected]

Bobbette Scott Partner, Head of South Australia +61 8 8233 5211 [email protected]

Adelaide Office Australian Eastern Seaboard Active Capital Market Overview Residential Review Industrial 2019 March 2019 Q2 2019 Development July 2019

Knight Frank Research Reports are available at KnightFrank.com.au/Research

Important Notice © Knight Frank Australia Pty Ltd 2019 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Australia Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Australia Pty Ltd in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Australia Pty Ltd to the form and content within which it appears.