Research & Forecast Report
Accelerating success.
INDUSTRIAL Second Half 2019 Accelerating success. MAXIMISE THE POTENTIAL OF DATA
IN-DEPTH DATA At the forefront of the real estate industry, we Granular datasets covering historical understand the demand and forecast data with over 2,000 datapoints updated quarterly. for reliable and accurate data is more prevalent than ever. Our enterprising technology, Colliers Edge, offers comprehensive DETAILED property data that enables TRANSACTIONS you to delve deeper into the Australian property Individual reporting of market, using data to major transactions. become more informed and deliver enduring value. Colliers Edge is a data subscription service developed by our in- INSIGHTS house research experts, Our experienced research team who collaborate with will help you understand quarterly our National network changes, as well as broader themes of operators to drive behind each sector and market. exceptional results.
Joanne Henderson Director | Research +61 410 391 093 [email protected] colliers.com.au/colliersedge CONTENTS
Snapshot | Industrial 4
National Overview 5
Sydney 6
Melbourne 9
Brisbane 12
Adelaide 14
Perth 16
Newcastle 18
New Zealand 20
Our Expertise 22
Accelerating success. INDUSTRIAL | Research & Forecast Report | H2 2019 INDUSTRIAL SNAPSHOT
*H2 2019 figures as at Q3 2019
Brisbane* Net Face Capital Incentive Land Rent Yield Value Level Value $/sqm % $/sqm % $/sqm
H2 2019 (Q3) $111 5.94% $1,874 16.2% $321
H1 2019 (Q1) $110 6.07% $1,816 16.2% $310
Sydney Net Face Capital Incentive Land Rent Yield Value Level Value $/sqm % $/sqm % $/sqm
H2 2019 (Q3) $155 4.75% $3,258 9.1% $1,261
H1 2019 (Q1) $151 5.04% $3,000 8.9% $1,214
Adelaide Melbourne
Net Face Capital Incentive Land Net Face Capital Incentive Land Rent Yield Value Level Value Rent Yield Value Level Value $/sqm % $/sqm % $/sqm $/sqm % $/sqm % $/sqm
H2 2019 (Q3) $102 7.56% $1,385 11.3% $205 H2 2019 (Q3) $111 5.73% $1,975 14.3% $393
H1 2019 (Q1) $100 7.75% $1,319 11.3% $200 H1 2019 (Q1) $111 6.03% $1,876 14.4% $393
Perth * Includes the following precincts: ATC, North and Outer North, South, South West and Yatala Net Face Capital Incentive Land Rent Yield Value Level Value $/sqm % $/sqm % $/sqm
H2 2019 (Q3) $79 7.00% $1,121 17.5% $438
H1 2019 (Q1) $78 7.10% $1,099 17.5% $438
Average Land Value Ranges Share of Supply to be Delivered 2019 to 2023
$1,800 5% $1,600 10% $1,400 $1,261 $1,200 9% $1,000 m
q 46% s
/ $800 $ $600 $393 $441 $400 $321 $205 $200 29% $0 Sydney Melbourne* Brisbane Adelaide Perth Low High Average NSW VIC QLD SA WA Source: Colliers Edge Note: *This figure for Melbourne excludes the City Fringe Source: Cordell Connect/Colliers International
4 INDUSTRIAL | Research & Forecast Report | H2 2019 NATIONAL OVERVIEW
By Karina Salas There is no doubt that the current transport infrastructure investment Manager | Research is set to transform the outlook of the industrial market not only for [email protected] operators, but also for developers and investors currently revisiting Transport infrastructure investment transforming their investment strategy to recognise the changing market dynamics the industrial market created by the infrastructure investment.
Transport infrastructure plays a critical role shaping the dynamics Industrial land values driven by rapid population of how a country uses its labour force and capital. As the Australian growth population continues to grow and land availability for different Rapid population growth and high population density in the East uses becomes restricted, a strategic transport network is required Coast underpin the increase in land values throughout the largest to facilitate socio-economic development and to provide efficient capital cities, as land availability for industrial development becomes and flexible access to different markets. The Australian transport limited and its use is restricted to other purposes, particularly in infrastructure network has entered an era of transformation and proximity to the CBD. renewal, with an estimated investment in transport infrastructure Melbourne has reported an increase in industrial land values in the projects under construction and committed of $133 billion and with range of 25 to 105 per cent for the past five years, with the average over 65 per cent of this investment scheduled for completion in the land values sitting in the range of $305/sqm to $1,400/sqm. next three to five years. Similarly, Sydney has seen growth in average industrial land values Several infrastructure projects currently under construction are in the range of 85 to 215 per cent over the past five years to a range expected to have a significant impact on the way the Australian of $725/sqm and $2,750/sqm. In the case of Brisbane, a solid 5-year industrial market operates, reshaping the demand drivers for increase in land values in the range of 25 to 50 per cent, to an industrial land. The $16.8 billion WestConnex project in Sydney will average range of $300/sqm to $415/sqm has been witnessed. reduce travel time between Parramatta and the Airport by about 40 minutes, cutting down transport costs for industrial operators within As more than half of the Australian population remains heavily the Inner, Central and Outer West precincts and potentially driving concentrated in Sydney, Melbourne and Brisbane, industrial land industrial expansion in the Western Sydney precincts offering more values in these capital cities will continue to trend upwards, with availability of industrial land. the transition from bricks and mortar retail to e-commerce retail becoming another key driver of industrial activity in these regions. The $6.7 billion West Gate Tunnel project in Melbourne will create an alternative and direct route connecting the West industrial precinct We anticipate that the rail transport infrastructure investment pipeline with the Port, benefiting up to 9,000 trucks using the West Gate will improve operational efficiencies for industrial operators located bridge and reducing travel time by up to 50 per cent. The completion in outer and even regional precincts, which eventually may ease the of this project opens the opportunity to use High Productivity Freight pace of the growth in land values. However, a National Population Vehicle road access. This is expected to allow movement of greater Strategy is critical to promote decentralisation of Australia’s volumes of freight with fewer movements encouraging industrial population and support a more efficient use of land and resources development within more affordable and distant precincts to the Port across the country. and beyond the City Fringe precinct.
Colliers International anticipates that the $10 billion Inland Rail project will challenge the status quo of the industrial market on the Transport Infrastructure Projects Australia East Coast, expanding and connecting the supply chains $35 45 across Melbourne and Brisbane to international and other domestic 40 $30 N u ) markets. This initiative, scheduled for completion by 2028, will 35 m n
$25 b o i 30 e l l r strategically lift the national freight capacity creating distribution i
b $20
25 o ( f
$ and transport efficiencies reflected on rail costs savings of about $15 20 P D r o U 15 j e $10 per tonne between Melbourne and Brisbane. The completion of A $10 10 c t this project is expected to support industrial development beyond $5 5 s the traditional capital-cities industrial precincts and into regional $- - NSW VIC QLD Various WA SA TAS NT ACT locations in proximity to the rail line in Victoria, NSW and Qld. The Air & Space Rail Road Number of Projects most likely regions to benefit from the Inland Rail are expected to be Toowoomba, Willowbank, Bromelton and Acacia Ridge in Queensland, Source: Deloitte Access Economics Investment Monitor, June 2019 - Tottenham in Victoria and Parkes in New South Wales. Under Construction and Committed
5 INDUSTRIAL | Research & Forecast Report | H2 2019 SYDNEY OVERVIEW
Market Indicators - September 2019 Transport, Postal & Warehousing and Wholesale Retail sectors continue to drive tenant demand, underpinning growth in the AVERAGE NET FACE RENTS ($/m2) average prime net face rents of circa 8 per cent over the past YoY to Prime Secondary September 2019. L H L H The South industrial sub-market has recorded the most substantial $139 $171 $123 $141 average prime rental increase among all precincts in Sydney over the past 12 months. Prime net face rents have risen by 21.3 per cent YoY AVERAGE YIELDS to average around $228/sqm due to declining stock and increased Prime Secondary competition for alternative uses. L H L H 4.54% 4.96% 5.21% 5.68% The average prime net face rent across the West sub-markets has increased by 5.3 per cent YoY to $130/sqm as at September 2019, AVERAGE CAPITAL VALUE* ($/m2) while the average prime incentive has declined from 11 per cent a Prime Secondary year ago to circa 10 per cent now. L H L H Industrial investment activity in NSW has reached circa $1.97 billion $3,055 $3,456 $2,369 $2,501 over the year to September 2019, driven by demand from private and offshore investors, particularly from Japan and Europe. Yield DEVELOPMENT SUPPLY compression is forecast to continue on the back of a record low cash rate (0.75 per cent) and bond yields trending downwards. 2019 ANNUAL AVERAGE (2009-2018) Limited land supply continues to drive a solid increase in land values 533,810m2 473,930m2 across all industrial precincts in Sydney. The South precinct has recorded the strongest land values growth of 29 per cent YoY to September, remaining as the most sought after location for industrial operators, developers and investors willing to pay an average of $2,750/sqm.
Sydney Average Net Face Rents by Grade Sydney Average Yields by Grade
$180 12% $160 $140 10%
) $120 8% m )
q $100 s % ( / 6%
$ $80 d ( l
t e
$60 i n 4% Y e $40 R $20 2% $0 0% 1 1 7 7 3 3 9 9 9 5 5 8 8 6 6 4 4 2 2 0 0 1 1 7 7 3 3 9 9 9 5 5 8 8 6 6 4 4 2 2 1 1 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 - - 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------0 - - - - r ------r r r r r r r r p r r - p p r p p p p p p r r r r r p r r p r a p p p p p p p p p p a e a a a a a a a a a p e e e e e e e e e a e a a a a a a a a e e e e e e e e e e e M S M S M M S M M S M M S S M S S S M S M S M S S M M S M M S M S M S M S S S M S S Prime Grade Secondary Grade Prime Grade Secondary Grade
Source: Colliers Edge Source: Colliers Edge
6 INDUSTRIAL | Research & Forecast Report | H2 2019
By Alex Pham in the South West and Inner West markets over the past 12 months. Director | Research The average prime net face rents in the South West and Inner West [email protected] precincts rose by 6.6 and 6.3 per cent YoY to $116 and $143/sqm Conditions in the Sydney industrial market have remained positive respectively. With relatively more moderate growth, prime net face over the third quarter of 2019. Demand continues to be driven by rents in the North West and Central West increased by 2.8 and the Transport, Postal & Warehousing and Wholesale Retail sectors. 2.0 per cent to $128 and $130/sqm respectively. Prime incentives Growth in e-commerce activity and infrastructure investment is currently average around 9 - 12 per cent across all sub-markets in supporting the logistics sector and demand for warehouses in the West. strategic locations. Following the steady supply of new industrial Secondary assets in the Western markets also registered space during 2019 with 533,810sqm of space delivered, the rate of increases in rents over the past 12 months due to the high level of new construction activity is expected to slow down in 2020. Since requirements for existing industrial facilities. On average, secondary the beginning of this year, a total of 221,793sqm of new industrial net face rents across all sub-markets in the West have risen by space have been completed. 5.8 per cent per annum to around $116/sqm. In line with the prime On the back of the positive space demand amid limited supply, net market, the Outer West secondary market also recorded the sharpest face rents have continued to rise across the board. The average escalation in net face rents – which rose by 11.1 per cent YoY to prime rent in Sydney has increased by 7.9 per cent to $155/sqm in $120/sqm. The strong rental growth has spilt over to the South West September 2019 from $144/sqm a year ago. For secondary assets, precinct, where the average secondary net face rent has increased net face rents averaged around $132/sqm, which was up 7.1 per cent by 8.8 per cent YoY to $105/sqm. Softer growth was recorded in YoY. Incentives have declined from 10 per cent from a year ago to the Inner West, North West and Central West sub-markets, where circa 9.0 per cent for prime and secondary properties as at 3Q 2019. secondary net face rents have risen by 4.4, 3.1 and 2.1 per cent to $118, $115 and $120 respectively. Incentives are being offered at Investment Market around 9.0 to 11.0 per cent. The rate of capital flows into the industrial market has accelerated Investment yields have continued to trend down further across all over the past quarter with demand stemming from both institutional sub-markets in the West. Core market yields have compressed by and private investors. Most importantly, Colliers International around 50 bps over the past 12 months. Core market yields for continues to witness the healthy buying activity of private buyers as prime assets are currently sitting at 4.5 to 5.0 per cent. Secondary well as offshore investors – particularly from Japan and Europe. The properties are trading at around 5.0 to 6.0 per cent. Land prices amount of dry power remains high, with many groups have recently across the West market have increased by over 24 per cent over the completed capital raises to put in the logistics sector. Over the 12 past year to average between $670 and $820/sqm. months to September 2019, a total of $1.97 billion worth of industrial assets in NSW have transacted, which is slightly lower than the corresponding volumes a year ago.
A notable transaction occurring in the third quarter of this year was 159 Newton Road, Wetherill Park purchased by a private investor from Lester Group for $24.4 million. The transaction represents an initial yield of 5.71 per cent and a building rate of $1,928/sqm. Another benchmark deal was 230-236 Captain Cook Drive, Kurnell which was transacted as a sale & lease back for $36 million from Dika Data to EG Funds. The purchase price reflects an initial yield of 5.90 per cent and a building rate of $2,256/sqm. With the cash rate sitting at its record low level of 0.75 per cent and bond yields continuing to trend down, Colliers International anticipates yields to compress further and to stay low for a while longer. Sub-Markets West Industrial space demand has remained solid across all sub-markets in the West, which saw rents elevated compared to a year ago. The average prime net face rent across the West sub-markets has increased by 5.3 per cent YoY to $130/sqm as at September 2019. The average prime incentive has declined from 11 per cent a year ago to circa 10 per cent as at 3Q 2019. By sub-markets in the West, the Outer West market recorded the most substantial growth in prime net face rents, which rose by 9.9 per cent over the past year 64 Biloela Street, Villawood to $128/sqm as at Q3 2019. Strong rental growth was also recorded Sold on behalf of AMP Capital
7 INDUSTRIAL | Research & Forecast Report | H2 2019
North South The industrial market across the Northern suburbs of Sydney Due to declining stock and increased competition for alternative uses, continues to experience a lack of supply and limited stock levels. Net the South industrial sub-market has recorded the most substantial face rents for prime industrial space have climbed by 3.0 per cent rental increase among all sub-markets in Sydney over the past 12 over the 12 months to September 2019 to average around $206/sqm. months. Prime net face rents have risen by 21.3 per cent YoY to In the secondary space market, net face rents currently sit at circa average around $228/sqm as at September 2019. Secondary rents $168/sqm on average, up by 3.7 per cent from the previous year. have increased by 15.0 per cent over the past year to average around While rents in areas further North such as Hornsby and Ku-ring-gai $180/sqm as at 3Q 2019. Incentives for both prime and secondary are at similar levels to the Western suburbs, rents start to escalate stock are currently sitting at 7-8 per cent. Due to significant rental in the precincts closer to the commercial and population hubs of increases, many of the traditional industrial users have continued to Macquarie Park, Chatswood and St Leonards. Incentive levels range relocate to more affordable markets. At the same time, the tenant quite extensively depending on the type of assets and owners. base has broadened to higher-value uses such as car and furniture Privately-owned assets are offering incentives of around 5 per cent showrooms, wholesale retailing, import-export goods and services, while institutional-grade properties are giving away up to 15 per cent as well as non-traditional tenancies such as childcare, education in incentives to attract the right user. centres, gyms, clinics and independent coffee roasters.
The tenant base in the North sub-market continues to shift toward The investment market remains active with strong demand for higher-value industrial users such as medical, IT, construction and mixed-use development sites and small industrial units. Strata automobile services. Investors are facing stiff competition from industrial assets in the South market continue to transact well with owner-occupiers, who are willing to pay a premium to secure new projects still coming to market. There are a couple of site sales strategic positions for their business. Investment yields for prime around Green Square and mascot railway for mixed-use commercial assets in the area are currently around 4.75-5.00 per cent and for development. Investment yields have continued to get tighter over secondary assets are around 5.25-5.75 per cent. However, the the past 12 months. Prime industrial buildings are being traded market is starting to see some well-located assets traded at sub-5 at between 4.5 and 4.75 per cent, while secondary assets are per cent as the competitive pressure continues to build up. A recent transacting at 5.0 and 5.25 per cent. example was 11-13 Rhodes Street in West Ryde transacted a 4.5 per cent initial yield for $7.9 million. The buyer is an owner-occupier in the construction supply business.
13 Ferndell Street, South Granville Sold on behalf of Centuria Capital
8 INDUSTRIAL | Research & Forecast Report | H2 2019 MELBOURNE OVERVIEW
Market Indicators - September 2019 Industrial developers are starting to consider what the warehouse of the future might look like, with advancements in robotics and AVERAGE NET FACE RENTS ($/m2) automation driving demand for higher internal clearance to increase Prime Secondary storage volumes and accommodate for new age picking and palletising equipment. L H L H $104 $119 $72 $84 Strong leasing demand, particularly in the West where 2019 pre-commitment requirements are tracking at almost 5 times the AVERAGE YIELDS long-term annual average. Speculative development activity is Prime Secondary increasing in response to this trend. L H L H 5.45% 6.00% 6.50% 7.10% Industrial areas are set to benefit from major new infrastructure projects and freeway upgrades improving connectivity and reducing travel times to and from the Port of Melbourne. AVERAGE CAPITAL VALUE* ($/m2) Prime Secondary Land values are increasing off the back of strong leasing demand and L H L H take-up coupled with the dwindling supply of industrial land across $1,750 $2,229 $1,032 $1,314 Victoria.
DEVELOPMENT SUPPLY Investment demand continues to be very strong, and stock remains tightly held, with the majority of transaction activity in 2019 being 2019 ANNUAL AVERAGE (2009-2018) secondary assets or turn-key developments. Total volume is forecast to be around $1 billion which is low compared to previous years but 2 2 201,800m 381,940m is expected to bounce back in 2020. Strong demand relative to the supply of investment grade stock has driven a tightening of prime and secondary yields across all precincts.
Prime Initial Reversionary Yield Land Values
10.0% Forecast $1,600 9.0% $1,400 $1,200 8.0% $1,000 m % 7.0% q $800 s / $ 6.0% $600
$400 5.0% $200 4.0% $- 5 6 7 8 9 5 6 7 8 9 0 1 2 0 1 2 5 6 7 8 9 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 9 8 7 6 5 4 3 2 1 0 8 7 6 5 4 3 2 1 0 9 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 0 - 0 - 0 - 0 - 0 - 1 - 1 - 0 - 0 - 0 - 0 - 0 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 2 - 2 - 2 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 0 r - 1 r - 0 r - 0 r - 0 r - 0 r - 1 r - 0 r - 0 r - 0 r - 0 r - 0 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 2 r - 2 r - 2 p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p p M a M a M a M a M a M a M a M a M a M a M a M a M a M a M a S e S e S e S e S e S e S e S e S e S e S e S e S e S e S e M a M a M a M a M a M a M a M a M a M a M a M a M a M a M a M a M a M a S e S e S e S e S e S e S e S e S e S e S e S e S e S e S e S e S e S e North South East West Outer East City Fringe North South East West Outer East City Fringe
Source: Colliers International Source: Colliers International
9 INDUSTRIAL | Research & Forecast Report | H2 2019
By Sarah Walker to advanced manufacturing are the most prevalent availability and Manager | Research proximity of a skilled labour force and the CBD. As the landscape [email protected] changes for industrial occupiers in fringe precincts, new retail and lifestyle amenity becomes a necessity. In Port Melbourne, this has Overview seen the emergence of tenants like Sensory Lab Coffee Roasters, There are a few key themes to note across the industrial market in Starward Whiskey, Colonial Brewing Co and event spaces like The Victoria this quarter. The first is the continued strength in leasing Timber Yard and Half Acre. We forecast rents to continue to grow as demand across the board which is in part driven by the e-commerce precincts gentrify further and industrial landlords seek to replace the effect but also by supply chain improvements that allow for traditional industrial occupier with the likes of the above. On average consolidation and expansion into larger, more modern warehouses face rentals in the City Fringe for prime stock are $200/sqm and where there is land available to develop them, i.e. Melbourne’s West $110/sqm for secondary. Incentives have continued steady at 8 per in particular. cent for prime and 12 per cent for secondary.
Secondly, industrial developers are starting to consider what the The most notable investment sale in the City Fringe this year to date warehouse of the future might look like. Advancements in robotics was 127 Todd Road, Port Melbourne which was sold by The Herald and automation is driving demand for warehouses with higher and Weekly Times (HWT) to Blackstone. The $55 million price tag in internal clearance, higher speed data connections and other changes April this year for the 5.82ha site reflects an underlying land value of to the traditional design elements to respond to new age storage approximately $945/sqm. The asset was purchased with a short-term solutions and supply chain management. More and more tenants leaseback to HWT at approximately $115/sqm. Average yields are viewing automation as essential in new warehouse design and continue with a steady decline averaging 5.38 per cent for prime and placing a huge emphasis on the automation of their distribution 6.13 per cent for secondary- the recent interest rate drop will slow centres to increase productivity and efficiency in the supply the rate of future compression. chain. Whilst buildings are currently valued on a rate per sqm, as warehouses trend towards automation and higher clearances we can North see valuation methodologies adapting. One of the world’s largest supermarket chains, Kaufland is opening its first Australian distribution centre at MAB’s Merrifield Business Furthermore, across all industrial precincts, face rents are increasing Park. The 28ha site encompasses a purpose-built distribution centre as underlying land values continue to grow and yields are continuing that will be the largest of its kind in Australia. The Merrifield Business to firm in response to lower interest rates and a shortage of Park was chosen due to its location on the Hume Freeway, proximity investment stock available relative to demand. We forecast rents to the city and ability to cater for future expansion. The $255 million- to continue growing, particularly in areas set to benefit from major dollar distribution centre will incorporate 40-metre high-bay storage infrastructure projects already underway or close to commencing, areas, an emerging trend that responds to increased reliance on such as the West Gate Tunnel, North East Link, and the Mordialloc robotics and automation. Bypass. Face rentals in the north have remained steady for the last 6 months Sub-Markets at an average of $85/sqm for prime and $70/sqm for secondary City Fringe assets. Incentives remain at 15 per cent for prime and 12 per cent for secondary assets. Land tax increases are negatively impacting the city fringe industrial markets by driving occupancy costs higher and prompting tenants Despite investment sale volumes being down on last year, there to consider relocating further from the CBD. This is particularly have been some key major site sales including the Ford site in notable in Port Melbourne where outgoings are now above $60/sqm Broadmeadows. Pelligra, who purchased the site from Ford, has in the Fishermans Bend Urban Renewal Area and above $40/sqm earmarked the existing building on site as a hub that will provide for in the Employment Precinct. This increase is continuing to push several smaller tenancies to be leased to industrial occupiers. In the leasing demand from the more traditional logistics operators further long term, the balance of the surplus land will be redeveloped. West where land values and economic rents are significantly less. At the conclusion of the third quarter the northern market’s vacancy The West Gate Tunnel project due for completion in 2022 provides rate for buildings above 3,000sqm was 5.86 per cent across 21 further encouragement for logistics operators to migrate further buildings, with A Grade vacancy much tighter at 2.14 per cent. This is West by providing direct access for trucks to Citylink and the Port of the result of increased demand in the North and the scarcity of prime Melbourne. grade stock currently available, in a market that has not traditionally Leasing demand remains the strongest in employment precincts as added much new development stock year on year. This will change opposed to urban renewal areas due to relatively lower occupancy in the coming years with developers like Frasers and Vaughans being costs. Research and development companies in the automotive able to accommodate for pre-lease and speculative demand in Epping sector and other high-tech industrial users including those linked and as Pelligra starts to develop the surplus land on the Ford site.
10 INDUSTRIAL | Research & Forecast Report | H2 2019
West steady at an average of 6.75 per cent, however we expect to see some compression in 2020 off the back of falling interest rates and Melbourne’s West is one of the fastest growing industrial areas strong investment demand. in Australia. Its popularity stems from its proximity to the Port of Melbourne, and connectivity to major arterials which reduces travel South East and Outer East times and increases efficiency in supply chains. Coupled with the A notable trend in the South East and Outer East markets in 2019 ability to access large parcels of land, this market continues to has been sale and lease back transactions. Of the total investment attract major corporate occupiers, e-commerce businesses and high sales this year, approximately 52 per cent have been purchased by profile 3PLs seeking larger warehouse footprints relatively close to an Institution, with the predominant vendors being corporate owner the Port and the CBD. The automation trend is prevalent here also, occupiers. Some examples include 67-91 Nathan Road, Dandenong with Woolworths recently commencing construction of their new South and 282-300 Hammond Road, Dandenong South which were Fresh Distribution Centre in Truganina to replace the existing centre both sold by owner-occupiers to Charter Hall for $18.6 million and in Mulgrave. On completion, the warehouse will comprise 14km of $30.9 million respectively. 649-655 Springvale Road, Mulgrave was conveyor belts serviced by robots, a $560 million investment in sold to Fife Capital by Rinaldi Pasta who have consolidated into their automation to improve productivity and efficiency. Toyota Australia neighbouring facility. Fife purchased the 20,000sqm property for proposed a fleet of autonomous autopilot vehicles from their Altona $26 million with plans to redevelop it. factory in 2020. Toyota will have autopilot driverless technology to complete mobility in conveyance, towing, lifting and be able to The South East and Outer East markets are much more land autonomously place product throughout the warehouse and pick constrained than the West, which drives developers to consider the orders for customers. acquisition of vacant brownfield sites or long-term land banking plays like Charter Hall’s acquisition of the Bombadier Transport site. Land Demand is outstripping supply with vacancy rates sitting around 2.5 values in this sub-market are the highest outside of the City Fringe per cent for prime grade stock above 5,000sqm. The rising trend averaging $ 500/sqm in the South East and $443/sqm in the Outer of e-commerce companies attracted to the West continues, with East. eStore Logistics recently committing to two leases in Truganina; a 26,000sqm facility at 8 Feldsted Drive and another circa 8,400sqm Leasing activity is increasing due to pent up demand from corporate development at West Industry Park. These two new distribution occupiers wanting to be located in new or modern buildings in the centres will comprise leading automated technology to ensure an Bayside area. Fraser’s “Braeside Industrial Estate” has secured a optimal supply chain, with same day delivery. lease with Puma, the third speculative tenancy in the development. Puma have committed to a 14,110sqm warehouse which will be 5 There has been a combined total of 540,000sqm take up across Green Star and worth approximately $25 million on completion. pre-leases and existing building transactions above 3,000sqm this Puma will join IVE Group occupying 14,133sqm and Gale Pacific year with the average size deal approximately 15,500sqm. This Group who will occupy 10,643sqm both all speculatively built. Once reflects a year on year increase of 258,000sqm. these three speculative sites are built, Frasers will spec another About 30 per cent of all leasing deals so far in 2019 have been 24,000sqm with a remaining pad site that can accommodate in Truganina, with some of the larger existing deals including approximately 35,000sqm. The major drawcard for this site is the HB Commerce (30,000sqm), Secon (23,000sqm) and Estore proximity to the proposed Mordiallic Bypass which will be 500m (8,383sqm). Pre-lease activity has also been predominantly from the Estate. Rents remained steady for prime assets averaging concentrated in Truganina with deals including Super Amart $93/sqm in the South East and $99/sqm in the Outer East. (50,000sqm), CEVA (38,000sqm) and Orora (8,000sqm). Face rents Movement was recorded for secondary in the South East increasing for prime grade assets currently average $81/sqm and $65/sqm for 7 per cent in the last quarter to average $75/sqm due to lack of secondary assets, with incentives averaging 20 per cent across the available prime stock. Lack of available stock has enabled landlords board. to decrease incentives across prime stock to 18 per cent in the South East and 12 per cent in the Outer East. Transaction activity has been steady, with Mapletree Logistics Trust recently purchasing a speculative development project of 15,100sqm at 15 Boterro Place, Truganina for $18.4 million to be completed next year.
In the last three years, land values have doubled and currently average $325/sqm (serviced). The market is fuelled by demand from Institutions who remain heavily dominant, particularly with respect to land ownership and development. A noteworthy recent land transaction is ISPT‘s acquisition of 744 Boundary Road, Truganina, an unzoned vacant site within the Urban Growth Boundary which they purchased for $23.1 million. Average yields for prime assets have tightened 50bps in the last 6 months to 5.25 per cent due to the limited supply of investment stock coming to market relative 17-23 Redwood Drive, Dingley to record high demand. Yields on secondary stock have remained Leased on behalf of Chromagen Australia
11 INDUSTRIAL | Research & Forecast Report | H2 2019 BRISBANE OVERVIEW
The proposed dedicated freight rail between Acacia Ridge and Market Indicators* - September 2019 the Port will accelerate the industrial development activity in the Southern and Australia TradeCoast (ATC) precincts, with a significant AVERAGE NET FACE RENTS ($/m2) level of demand from logistics, transport and distribution operators. Prime Secondary The development supply in Greater Brisbane and Yatala is forecast L H L H to reach circa 317,650sqm in 2019, potentially remaining above the $107 $114 $72 $90 long-term average of circa 261,000sqm.
AVERAGE YIELDS Land value growth has accelerated over the past few months Prime Secondary increasing across several precincts in the range of 1 to 6.5 per cent for the year to September, to an average of $321/sqm (including L H L H Yatala). The ATC recorded the strongest annual growth of land values 5.70% 6.18% 7.15% 7.90% of 6.4 per cent, to $415/sqm.
AVERAGE CAPITAL VALUE* ($/m2) Prime grade leasing activity dominates the market, driven by the Prime Secondary relocation and expansion activity within the Yatala and South L H L H precincts. The average net face rents in Greater Brisbane and Yatala $1,736 $2,012 $926 $1,260 increased by 1.3 per cent, to $111/sqm in September this year. Rental activity within the secondary market continues to soften, revealing the flight-to-quality phenomenon extended across the different DEVELOPMENT SUPPLY Australian property asset classes.
2019 ANNUAL AVERAGE The Brisbane industrial property market has become an attractive (2009-2018) investment option for institutional investors due the stronger returns 317,650m2 260,670m2 compared to other national and worldwide investment options in property and non-property asset classes. The year-to-date volume of sales (above $5 million) in Greater Brisbane and Yatala of $1.09
* Includes the following precincts: ATC, North and Outer North, South, South West and Yatala billion is on track to outperform the 2018 sale volumes.
Fierce competition for industrial assets across a broad spectrum of investment players has driven further compression of yields in the range of 40 to 50bps over the past year. Prime grade investments are transacting at an average yield of 5.94 per cent while secondary grade assets are trading at an average yield of 7.53 per cent.
Brisbane Industrial Sales ($5 million+) Brisbane Average Net Face Rent by Grade ($ per sqm)
$1,600 $160 $1,400 $140 $1,200 $120 s m n q
o $100 s i $1,000 l
l i r e
m $80 $800 p
D $ D U $600 $60 U A $ A $40 $400 $20 $200 $0 $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 YTD Domestic Oshore Undisclosed Prime Secondary Prime to Secondary Rent Premium
Source: Colliers Edge Source: Colliers Edge
12 INDUSTRIAL | Research & Forecast Report | H2 2019
By Karina Salas Keppel Logistics (10,480sqm) and Concept Logistics (6,950sqm) are Manager | Research a few of the tenants expanding or relocating within the Southern [email protected] precincts this year. Investment Market The South West precinct has seen strong demand of pre-committed REITs driving demand of industrial assets activity, with the Australia Post Facility (48,748sqm) and Coles Distribution Centre (66,000sqm) supporting nearly one third of the The estimated volume of sales of $1.09 billion was largely driven by development supply within the precinct over the next three years. large-scale transactions above $100 million (contributing to nearly 40 per cent of the total sales). The surge of REITs as an attractive Upon completion of the Logan Enhancement Project, Berrinba has investment vehicle worldwide is driving demand for large industrial now consolidated as a favoured location for industrial tenants with assets in Brisbane with nearly half of the sales this year ($505 leasing deals of circa 82,000sqm over the year to date. This includes million) acquired by Australian and offshore REITs. This compares pre-commitment deals with CEVA Logistics (21,200 sqm), DHL with an estimated participation of REITs in the Brisbane investment (20,600sqm), Huhtamaki (food packaging operator, 12,635sqm) and market for industrial assets of circa 20 per cent in 2018 and circa 5 Phoenix Transport (10,000sqm) and leases of existing assets with per cent in 2017. WING Aviation (drone-delivery operator, 17,800sqm).
As the current infrastructure investment in projects like the M1 New industrial development supply at Berrinba between 2019 and Pacific Motorway and the Logan Enhancement Project strengthens 2022 is forecast at circa 268,360sqm, with nearly 30 per cent (circa the outlook of the industrial market, REITs have identified Brisbane 79,200sqm) of the space reaching practical completion in 2019. as a strategic location for industrial investments providing long-WALE Our forecast includes the purpose-built industrial facilities for Mitre rental streams. Colliers International anticipates that REITs will 10 (27,500sqm) and QLS Logistics (12,000sqm) at the Motorway continue to drive a large portion of investment demand of Brisbane Industrial Park and the Pinnacle Hardware warehouse (12,000sqm) industrial assets over the next 12 to 18 months. This is because the at Berrinba Logistics Park completed in H1 2019. Brisbane industrial market continues to consolidate as a preferred Colliers International anticipates that the suburb of Crestmead location for a variety of operators looking for affordable large-scale will see the next wave of leasing deals due to its proximity to the warehouses in proximity to a transport network offering cost- upgraded roads along the Logan Motorway and the availability of efficient connectivity to national and international markets. vacant industrial land along Green Road largely owned by institutional The solid demand from REITs underpins the lift on the average sale investors (estimated at circa 40ha). price (for transactions above $5 million) from circa $15 million in Prime grade assets drive operational efficiencies and 2018 to an estimated average of circa $24 million over the year to rental growth date. We have also noted a reduction in the number of investment Tenant’s preference for quality assets prompting operational sales above $5 million from circa 75 transactions in 2018 to circa 46 efficiencies has put upward pressure on the premium paid for prime transactions for the year to date. grade assets compared to the rent paid for secondary assets. The So far in 2019, the South precinct remains as the main location of current average prime grade net face rent of $111/sqm is $30/sqm investment transactions, with circa $501 million sales representing more expensive than the average net face rent for secondary assets 46 per cent of the total sales volumes. The most notable transaction of $81/sqm. This compares to a 10-year average rental premium of was the sale of the Crestmead Distribution Centre at 105-137 prime to secondary assets of $24/sqm. As tenants’ requirements Magnesium Drive in Crestmead for $183.6 million acquired by for asset quality and location continue to drive demand of industrial Charter Hall REIT at a passing yield of 5.15 per cent from Blackstone. assets, we expect to see an upward trend on the premium rent paid The building offering 89,254sqm of gross lettable area is leased to for prime grade assets compared to secondary grade assets. the wholesale distribution and marketing company, Metcash Trading, with a WALE of 10 years.
The long-standing reduced cost of debt and the current low levels of the Australian bond yield are forecast to continue to drive further yield compression into 2020. Leasing Market Southern precincts leading leasing activity The recent completion of the $512 million Logan Enhancement Project and the ongoing upgrade of the M1 Pacific Motorway support the consolidation of the Southern industrial precincts as a strategic location for industrial expansion in southeast Queensland. Leasing demand of existing industrial space in the South and South West precincts has been solid over the year to date, with circa 214,000sqm of gross lettable area (GLA) tenanted. 1-7 Wayne Goss Drive, Berrinba on behalf of Ascendas (now Capitaland) to WING Aviation
13 INDUSTRIAL | Research & Forecast Report | H2 2019 ADELAIDE OVERVIEW
Market Indicators - September 2019 Infrastructure investment remains key for growth in the Adelaide industrial market, with the most recent state budget committing $5.4 AVERAGE NET FACE RENTS ($/m2) billion to the final stages of the North-South Corridor. The state Prime Secondary government has committed to the entire corridor to be completed within a decade. L H L H $88 $121 $56 $75 Vacancy falls to a record low of 2.7 per cent down from 3.7 per cent. This has been driven by vacancy in the Inner North falling to 1.7 per AVERAGE YIELDS cent. Relatively low vacancy rates are expected to result in some Prime Secondary higher than average rental growth over the next two years. More L H L H design & construct activity is expected due to low vacancy. 6.65% 8.20% 8.30% 9.70% Prime gross face rents have started to grow across most markets. The Inner North rents are not far from the peak in 2013 with the Outer AVERAGE CAPITAL VALUE* ($/m2) Prime Secondary North needing to see growth of 16 per cent to be at the same level as the peak (which is expected over the medium term). L H L H $1,337 $1,458 $685 $789 New supply reaches decade highs with circa 152,500sqm of space due to complete in 2019. This is the highest level of new supply seen since DEVELOPMENT SUPPLY 2007. There is 220,107sqm currently under construction with major projects including the new Metcash DC, Sigma Healthcare DC, new 2019 ANNUAL AVERAGE Huhtamaki DC and the expansion of Woolworths DC. Pre-commitment (2009-2018) activity has driven the new supply with very limited speculative 152,500m2 63,880m2 development. Large institutional developers have become more actively involved in the development of new Distribution Centres.
Prime yields are starting to tighten in key precincts over the last 12 months. Outer North has tightened 50bps with the Inner North tightening 25bps over the same period. Scope for further tightening in yields is expected.
Adelaide Industrial Vacancy Total Adelaide Industrial Supply
7.00% 200 6.00% 180 5.00% 160 140 4.00% 120 m q
3.00% s 100
s 80 0
2.00% 0 0
' 60 1.00% 40 20 0.00% 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Colliers International Source: Colliers International
14 INDUSTRIAL | Research & Forecast Report | H2 2019
By Kate Gray Land values in the Outer North have remained stable over the last 12 Director | Research months and is now in the range of $35-$85/sqm. [email protected] Inner North Market Outlook Vacancy in the Inner North has fallen to a record low of 1.6 per cent, The outlook for the Adelaide investment market is positive, with down from 4.2 per cent over the last half of the year. Prime net face rate cuts and increased demand improving the investment outlook. rents have grown by 4.9 per cent y-o-y and are in the range of $90- Demand for investment grade stock is expected to remain high with $125/sqm. Secondary net face rents have remained stable and are the buyer pool strengthening. We expect that institutional owners in the range of $50-80/sqm. Incentives are unchanged with prime will continue to be active, but there will continue to be opportunities incentives ranging between 5-15 per cent and secondary 10-15 per for businesses to purchase sites as owner occupiers. The increased cent. competition, reduced cost of debt and relatively high yield spread The Inner North has over 195,000sqm of space under construction compared to the eastern seaboard is expected to result in yields and due to complete during 2019 and 2020. Major projects include compressing further in the short term. This is most relevant for the Sigma Healthcare DC (10,000sqm), expansion of the Woolworths prime grade investment stock with long WALEs which are expected DC (94,000sqm), Metcash new DC (68,000 sqm) and Huhtamaki to lead the way in yield compression. DC (8,000sqm). As the ramp up to construction for the Frigates and submarine project nears, we expect further construction in the Investment Market Inner North precinct around Osbourne to support the growth in the Despite the abolishment of stamp duty on commercial transactions defence sector. in July 2018, sales volumes to September 2019 have reached $107.8 Prime yields have tightened and range between 6.25-8.00 per cent million compared to $278.9 million in 2018. Institutional owners have with secondary yields unchanged at 8.00-10.00 per cent. accounted for 59 per cent of the sales volume this year compared to 43 per cent in 2018. Institutional owners have accounted for 59 per Land values have increased 2.3 per cent over last 12 months and fall cent of the sales volume this year compared to 43 per cent in 2018. within the range of $180-$260/sqm.
The east coast industrial markets have experienced significant West & South compression in industrial yields and investors are looking to Prime net face rents in the West have grown by 18 per cent ranging Adelaide to balance their portfolio with higher yielding assets. There from $125-$170/sqm. Secondary net face rents have grown by 9.4 is a significant amount of capital which is looking to be placed, per cent and range between $75-$100/sqm Prime rents in the Inner within the Adelaide market offering higher yields and an improved South have grown by 4.5 per cent ranging $95-$135/sqm. Secondary economic outlook due to investments in defence, mining, energy and rents have grown by 10.7 per cent and range between $55-$85/sqm. infrastructure. The renewed interest in Adelaide from institutional Incentives are unchanged for both markets with prime incentives at investors has resulted in yields starting to compress with prime 5-15 per cent and secondary at 10-15 per cent. yields over the last 12 months tightening by 50bps in the Outer North, Prime yields in the West have tightened to range between 6.00-7.75 and 25bps in the Inner North. With the RBA indicating scope to make per cent. Secondary yields have tightened to range between 7.75- further cuts to the cash rate, it is expected competition for assets will 9.00 per cent. Yields in the Inner South have tightened with prime increase driving further yield compression. yields between 6.00-7.75 per cent and secondary 7.75-9.00 per cent. Sub-Markets Land values in the West have grown by 2.2 per cent y-o-y and range Outer North between $370-$550/sqm. Land values in the Inner South have remained stable and range between $350-$500/sqm. The Outer North has seen vacancy increase to 7.6 per cent, up from 6.7 per cent in March 2019. The Lionsgate Business Park had significant activity since it was purchased by the Pelligra Group with Levett Engineering, AMA Security, Sonnen, SA Power Networks, Australian Cranes and Genis Steel all taking space in this precinct.
Drakes supermarkets have completed their 45,000sqm - $80 million distribution centre at Edinburgh North. This new facility will see Drakes depart from Metcash who have committed to a new facility.
Prime net face rents have increased by 18.5 per cent annually with a rental range of $70-$90/sqm. Secondary rents have remained stable with a range of $35-$50/sqm. Incentives have remained unchanged at 10-15 per cent across both prime and secondary markets.
Prime yields have tightened by 50bp over the last 12 months with a significant tightening at the lower end. The current range is 7.00 per cent to 8.50 per cent. Yield compression was greater than other Adelaide 19 Indama Street Regency Park Sold for $4.5m on behalf of a Private Client sub-markets as the risks around the exit of Holden have reduced.
15 INDUSTRIAL | Research & Forecast Report | H2 2019 PERTH OVERVIEW
Market Indicators - September 2019 Global economic uncertainty has impacted both consumer and business confidence in WA. But buoyant global commodity demand is AVERAGE NET FACE RENTS ($/m2) driving increased exploration investment in WA, which is starting to Prime Secondary flow through to improved landlord and investor sentiment for Perth’s industrial sector. L H L H $70 $87 $53 $73 Vacancy had been in moderate decline since 2017 which assisted a mild recovery in Prime face rental rates in 2018-19 financial year. AVERAGE YIELDS However, continued developer activity, weak economic growth and a Prime Secondary subdued net tenant demand environment has seen vacancy begin to L H L H increase over H1 2019. 6.25% 7.75% 7.25% 8.50% The flight to quality is continuing to impact secondary grade stock AVERAGE CAPITAL VALUE* ($/m2) vacancy and is driving redevelopment activity in precincts with dated Prime Secondary stock - such as Kewdale/Welshpool and Bayswater/Bassendean. L H L H An improved outlook led to increased demand for land in core $1,000 $1,243 $673 $921 precincts, which had supported a 7.36 per cent increase in average vacant land values since 2018. DEVELOPMENT SUPPLY Prime yields have continued to tighten during 2019. Low cost of 2019 ANNUAL AVERAGE funds and lack of more favourable yielding alternative investments (2009-2018) has seen robust investor interest in the higher yielding Perth market. 197,930m2 248,700m2 The low interest rate environment has contributed to the weight of funds from superannuation seeking to be invested in the sector.
Perth Industrial Space Supply Perth Industrial Face Rents $140 400,000 $120 )
) 350,000 m m q
q $100 s
s r
( 300,000 e
p y
l $80 $ p (
p 250,000 s u t n S
e $60 e r
c 200,000 e a g p a $40 r S
e
l 150,000 v a i A r
t $20 s 100,000 u d n I 50,000 $0 1 1 7 7 7 7 3 3 9 9 9 9 5 5 5 8 8 8 8 6 6 6 6 4 4 2 2 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 ------r p r r r r r r r r r p p p p p p p p p r r r r a p p p p p a e a a a a a a a a e e e e e e e e a e a a a e e e e e S 0 M S M S S M M S S S M M S M S M M S M S M S M S S S M 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 M Prime Warehouse Rents (Net Face) Secondary Warehouse Rents (Net Face) Source: Colliers International Source: Colliers International
16 INDUSTRIAL | Research & Forecast Report | H2 2019
By Quyen Quach Prime-grade incentives were stable between 15 and 20 per cent, Associate Director | Research while secondary incentives were between 10 and 25 per cent. [email protected] Vacancy continues to be a larger issue in the smaller end of the Overview market. However, the recent vacancy increase will likely have a dampening effect on rental recovery. After a positive start to the 2019 calendar year, the leasing and investment sales environment in the September quarter appears to Yields tighten in 2019 be more subdued. While rents and value deterioration has largely impacted the Economic conditions have been more stable, but growth has smaller end of the market, capital values of larger investment stock, been slow to return - much slower than most would have like or particularly institutional-grade assets, continued to be assisted by anticipated. However, the foundations for a return to demand growth yield compression during 2019. are strengthening. Yields as low as 5.9 per cent have been reported for asset Population growth has continued to accelerate, rising from an transactions with strong lease covenants. Despite yield compression, annualised growth of 0.93 per cent in March 2019 to 1.0 per cent transaction activity in institutional-grade segment was relatively low, in June 2019. Business investment spending is expected to start with only five assets greater than $10 million changing hands in the growing again in 2020, and contribute to economic growth instead of first half of 2019. This continues to be a function of low availability being the driver of its contraction. as opposed to low investor appetite for this class of asset. The main Buoyant export revenue to underpin investment obstacle for potential sellers is the lack of options with comparable or revival superior returns that they can divert capital into. Resource exploration activity is trending higher, and laying the In general, Perth’s industrial market yields were between 6.25 per foundation for future investment spending growth. These explorations cent to 7.75 per cent for prime-grade assets and 7.25 per cent and have resulted from continued demand for the state’s vital natural 8.50 per cent for secondary assets. These yields, in comparison resources such as iron ore, natural gas, lithium, rare earths and to bonds and yields in other Australian cities, remain attractive to various other; which is persisting despite global economic uncertainty. investors and as a result, Colliers maintains a projection of further yield compression in the 2019-20 financial year. Bumper export revenue has boosted state government royalty and tax collections, permitting the state and local government to increase Land values and new supply public investment spending – which grew 10.1 per cent year-on-year After a low year of supply in 2018, when completions amounted to in the June 2019 quarter. 91,915sqm (for buildings over 2,000sqm), 152,730sqm of space has Why it’s taking so long been completed in the nine months to September 2019. Eventually, 2019 is expected to see total completions of 209,905sqm in Perth’s Its been an extended wait for a recovery in Perth’s industrial metropolitan area. Nearly half (91,590sqm) of this is in the south sector. One factor, outside the business investment decline, that region, with 84,200sqm in the East and 22,145sqm in the north. has hindered a rental rate recovery is supply. Despite weak net Colliers’ estimate for 2020 completions stands at 66,030sqm. tenant demand, developers have continued to do their job – develop. Development activity certainly slowed as the downturn unfolded, but Signs of improving economic conditions had seen an increase in land it did not cease. demand and Colliers analysis shows average core land values for lots between 2,000sqm and 10,000sqm increased 7.36 per cent between Perth’s industrial floor-space continued to increase over the past four 2018 and 2019. Core industrial land values were between $350 and years - which contributed to the downward pressure on rents and $525/sqm in the September quarter 2019. extending the time for the market to trough.
Although the continued development activity wasn’t a positive for market rents or investor returns, it was good for construction jobs and industrial space demand connected to the sector. It was also good for the economy. Without it, the construction sector economic conditions could have been worse. Vacancy to keep leasing market competitive Across metropolitan Perth, rents have continued to be stable in the +2,000sqm market. The latest Colliers industrial vacancy survey in October 2019 indicates an increase in vacancy. The industrial vacancy rate across Perth’s metropolitan area was estimated to be 8.65 per cent for buildings in excess of 2,000sqm. This represented approximately 866,810sqm of total space available for lease, up from 765,300sqm in April. In the September 2019 quarter, prime face rents remained between $70 and $90/sqm. At the same time, 19 Miles Road, Kewdale secondary rents were $50 to $75/sqm range. Sold for $45.25m on behalf of Coca-Cola Amatil Pty Ltd
17 INDUSTRIAL | Research & Forecast Report | H2 2019 NEWCASTLE OVERVIEW
Market Indicators - September 2019 Infrastructure investment in significant projects like the M1 Upgrades and NorthConnex, the refurbishment of the John Hunter Hospital and AVERAGE NET FACE RENTS ($/m2) the Astral Aerolab Newcastle Airport are forecast to drive growth in Prime Secondary industrial activity by either reducing operational costs or promoting industrial activity in defence or medical sectors. L H L H $100 $127 $80 $95 Leasing activity on the rise in the second half of 2019, with increasing enquiry particularly after the Federal election. Market AVERAGE YIELDS participants have been from a broad array of industries, ranging from Prime Secondary the traditional mining and resource sectors together with distribution, L H L H agribusiness, e-commerce and port-related services. Rental Rates 4.95% 6.70% 7.75% 8.25% have steadily increased over the past three years, with the growth continuing across the board for the year to September.
2 AVERAGE CAPITAL VALUE* ($/m ) Demand outstripping available supply of existing stock as a result of Prime Secondary strong levels of enquiry across all sectors, particularly from Sydney L H L H based companies and major third-party logistics operators. $1,350 $1,700 $1,000 $1,250 The shortage of supply of industrial buildings continues to drive land sales and create increased competition for existing buildings DEVELOPMENT SUPPLY* among tenants and occupiers who may not have suitable budgets or 2019 ANNUAL AVERAGE timeframes to construct new industrial facilities. (2017-2018)
37,530m2 25,950m2 A shortage in available investment stock coupled with the falling cash rate environment is being reflected in continued yield compression.
* Excludes owner-occupier developments
Newcastle Industrial Rents - 2018 - 2019 Vacancy Rate by Precinct Workshop & Warehouse Rates
Inner West $120 $110 Outer West $110 $105
$100 $95
m West $90 $90 s q $90 $88 $88 $88 $88 r e p
South West e
t $80 a R $70 Port
$60 North West $50 2011 2012 2013 2014 2015 2016 2017 2018 2019 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Warehouse & Workshop $/sqm Poly. (Warehouse & Workshop $/sqm) 2019 2018
Source: Colliers International Source: Colliers International
18 INDUSTRIAL | Research & Forecast Report | H2 2019
By Tim Woolf Given the lack of stock there has been a limited amount of Senior Executive | Industrial, Newcastle investment transactions throughout 2019, although assets with [email protected] long WALES and perceived strong covenants has seen a continued Demand outpacing supply across all industrial compression from H2 2018 to 6.10 per cent. This is evidenced by the sectors sale of the Bunnings Trade Centre at 114 Stenhouse Drive, Cameron Park which sold at Auction with four registered bidders in August Colliers International has continued to experience strong levels of for $5,000,000 plus GST. The property had a WALE of 4.2 years and enquiry from investors and owner occupiers operating in a multitude reflected a 6.1 per cent yield. of sectors such as construction and mining, agribusiness, renewable energy, e-commerce and port services. Particularly of interest is the Another example is a property sold at Colliers international October compounding enquiry from Sydney-based companies and major 3PL Auction. The property was leased to a national tenant having operators who view the Hunter Region with major consideration as an unexpired term certain of 2.35 years. The auction was hotly deliveries for customers into and out of the Hunter Region increases. contested with 43 bids eventually selling for $1,160,000 reflecting a 4.95 per cent yield. The Colliers International sale demonstrates the Key demand drivers: market appetite for leased assets and set a new benchmark in the 1. Employment base: Currently the Hunter provides an 383,120 region for industrial investment yields. Many bidders were looking for strong labour force, coupled with a forecast growing population alternate investment opportunities other than the perceived volatile to 2036 by 20 per cent. Access to labour for industry is share market and the low yielding bank term deposits. This trend is anticipated to remain appealing for employers into the future. anticipated to continue into H1 2020.
2. Lifestyle: Major residential areas are typically no more than Secondary assets continue to firm to reflect circa 7.75 per cent, as 30 minutes from the major industrial precincts, coupled with investors search for high yielding assets as an investment vehicle the proximity for employees to the coastal, rural and natural alternative to the stock market and long-term deposits. environments whilst the region also provides world-class education and health facilities together with national-sporting Strata unit market teams and entertainment facilities. Growth in the industrial unit market has been a result of increased 3. Price of Industrial Land: Industrial land is 50 per cent to 75 activity from owner occupiers in the sub-300sqm range during 2017 per cent less than other available options in Western Sydney, and the early parts of 2019, with many small business purchasers providing an appealing financial alternative to developers and taking advantage of the ease of borrowing for SMS (Self-managed owner occupiers. Superfunds). Subsequently Australia’s major lenders effectively stopped SMS lending by the middle of 2019, this change in lending 4. Major Road/Infrastructure upgrade: The imminent completion practice initially impacted sale rates for new projects and existing of major infrastructure projects including NorthConnex will industrial strata unit developments. The appetite for new units provide an improved link to the Hunter and Central Coast from remained strong, although the speed at which sale transactions Sydney Metro areas with the M1 Motorway upgrades. Motorists occurred slowed in H1 2019, however capital value rates have will soon travel from Sydney to the Hunter with less traffic lights remained steady from $2,000/sqm to $2,500/sqm. and reduced travel times. These works have been welcomed by logistics companies with the expected reduced travel times During this time, demand from tenants and rental rates for these new meaning less fuel costs and more efficient logistics operations. modern industrial strata units continued to rise. Businesses impacted by the tightening supply are increasingly looking to new strata units Lack of existing improved building stock has had a significant flow on to accommodate their needs, with a ‘flight to quality’ evident. Rental effect, on the broader market. rates for strata units are currently in the range $140/sqm to $160/sqm Firstly, this lack of stock forces many expanding companies as at H2 2019. to acquire land to construct suitable accommodation for their operations. Land is purchased as either vacant or Design and Construct packages. As a result, industrial land supply has been diminishing and prices have been trending upward, as much as 30 per cent above 2018 sale prices. Investor demand strong Enquiry levels from investors, either private or REITs for premium grade industrial investment opportunities, continues to increase in H2 2019 on the back of good demand in H1.
The major issue facing the local market is the lack of available investment stock and considering the recent announcement by the RBA that the cash rate has been reduced to 0.75 per cent, demand from investors is anticipated to increase. 11 Riverside Drive, Mayfield West Currently for Sale on behalf of a Sydney Developer
19 INDUSTRIAL | Research & Forecast Report | H2 2019 NEW ZEALAND OVERVIEW
Industrial continues to be a significantly attractive sector for Market Indicators - September 2019 purchasers across New Zealand. The Colliers International investor Auckland confidence survey shows a net positive (optimists minus pessimists) 70 per cent, 57 per cent and 32 per cent for Auckland, Wellington and Christchurch respectively. AVERAGE NET FACE RENTS ($/m2) Prime Secondary Tight leasing market conditions in Auckland and Wellington, along L H L H with a more positive balance between demand and supply in $145 $175 $118 $142 Christchurch are providing positive sector performances. This is driving positive expectations for the sector. AVERAGE YIELDS Prime Secondary Average net face warehouse rents continue to increase for many L H L H locations due to tight market conditions. Given current market 4.50% 5.39% 5.30% 6.36% dynamics, this is unlikely to change.
AVERAGE CAPITAL VALUE* ($/m2) The development pipeline is increasing but remains limited in Prime Secondary comparison to the extent of leasing demand. This is due to a limited L H L H number of key stakeholders controlling or in ownership of large land parcels in major markets. This is driving up land values. $2,700 $3,895 $1,860 $2,700
Positive market dynamics and low interest rates are driving DEVELOPMENT SUPPLY investment activity. Yields are sharpening further, and capital values are increasing. 2019 ANNUAL AVERAGE (2014-2018)
283,000m2 194,340m2
Auckland Net Warehouse Rents New Zealand Investor Confidence Survey
) 140 m q s
/ 130 70% $ (
s t 120 60% n e R
110
e 50% t s n u e o 100 c r h 40% e e r P a
90 t W e 30%
N t e 80 N
20% e g
a 70 r
e 10% v
A 60 1 1 7 7 3 3 9 9 5 5 8 8 6 6 4 4 2 2 0 0% - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 r - 1 r - 1 p r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 p p p p p p p p p Auckland Industrial Wellington Industrial Christchurch Industrial New Zealand M a S e M a S e M a M a M a M a M a S e M a S e M a S e S e S e S e S e S e Overall Jun-18 Jun-19 Prime Secondary Overall Source: Colliers International Research Source: Colliers International Research
20 INDUSTRIAL | Research & Forecast Report | H2 2019
By Chris Dibble Wellington regional rents continue to climb due the competitive Director | Research nature of the leasing market and a relatively static supply pipeline. [email protected] Average prime warehouse rents rose 3.7 per cent in the past year, from $109/sqm to $113/sqm in the Q2 quarter. Wellington regional Sub-Markets yields have been tightening consecutively over the past five years. Auckland Average prime yields firmed 46bp to 7.06 per cent in Q2 2019, while The latest August 2019 industrial survey shows the overall vacancy average secondary yields firmed 20bp to 8.50 per cent in Q2 2019. rate remains low at just 2.1 per cent. Some options have become Positive market and financial conditions boosted the 12-month available with secondary vacancy rates increasing to 2.3 per cent outlook with the Q2 2019 Colliers International Investor Confidence from 2.0 per cent in August 2018. However, a tight leasing market survey results for the Wellington industrial sector at a net positive and limited supply response has pushed prime vacancy to a low 1.5 (optimists minus pessimists) score of 57 per cent, the highest in 10 per cent, down from 2.0 per cent a year ago. Location continues to years. play a significant role in tenant demand as precincts located near main arterial routes such as the Airport Corridor are experiencing Christchurch record high demand and record low vacancy rates. Stronger market fundamentals continue to underpin the Christchurch industrial sector. Key to this has been the ongoing recalibration of Several infrastructure projects are on track to be completed over the the sector that has a more balanced demand and supply profile next few years providing more opportunities for industrial tenants. predominantly due to local businesses expanding and absorbing There is currently 283,000sqm under construction in Auckland, existing space. 172,000sqm consented and a further 69,005sqm in the planning and feasibility stages. Limited new supply in major industrial precincts is The development pipeline has also increased, up to approximately encouraging a rise in the number of extensions to existing buildings. 40,000sqm, including design-build properties for Fletcher Steel There has also been a rise in the number of speculatively led and the Bidfood Distribution Centre. There is also approximately developments and design-builds (or build to suit) remain a popular 4,200sqm under refurbishment and an additional 8,500sqm option for selected occupiers. consented, including CIAL warehouse space and five warehouses for Process Refrigeration NZ. Warehouse rental growth continues to track upwards due to strong market fundamentals and high levels of tenant demand. In Q3 2019, Prime average warehouse rents remain broadly the same at around prime average warehouse rents rose to $134/sqm, up from $130/sqm $100-$115/sqm, while secondary average warehouse rents have a year ago. Secondary average warehouse rents rose to $113/sqm, remained the same since Q4 2016 at approximately $80-$90/sqm. up from $106/sqm a year ago. Auckland yields are sharpening as Given the more positive market dynamics and low interest rate a result of confident investors and a low interest rate environment. environment, investor activity remains strong. Prime average yields Average prime yields firmed 47bp to 4.94 per cent in Q3 2019, down firmed 20bp between 2Q 2019 and 2Q 2018. Secondary average from 5.41 per cent a year ago. Average secondary yields firmed 43bp yields firmed a further 8bp. to 5.83 per cent in Q3 2019, from 6.26 per cent a year ago. The rise in rents and sharpening yields has meant prime capital The 2Q 2019 Colliers International investor confidence survey found values have risen by 2.3 per cent, to $1,908 in 2Q 2019 from $1,865 the Auckland industrial sector to achieve a net positive (optimists in 2Q 2018. Secondary capital values are up 1.2 per cent. minus pessimists) score of 70 per cent, the highest recorded since Q2 2016. Over the past three years, the industrial sector has The 2Q 2019 Colliers International investor confidence survey found consistently achieved the highest confidence scores, outlining the the industrial sector to achieve a net positive (optimists minus attractiveness of the industrial sector and likely performance over the pessimists) score of 32 per cent, above the five-year average of a net remainder of 2019 and into 2020. positive 25 per cent. Wellington Sourcing appropriate industrial leasing opportunities in Wellington remains challenging with a vacancy rate of 1.5 per cent, or just under 39,000sqm of available space.
There has been a lack of available industrial supply over the past few years and the current pipeline is unlikely to alleviate any existing demand pressures. There is 14,105sqm of industrial stock under construction, 8,400sqm of which is from the Toll Logistics Facility on the Wellington Railyards.
We forecast supply to increase over the next few years as infrastructure developments such as Transmission Gully support further expansion of the industrial market. However, the extended timeframes applied to the Petone-Grenada link road restricts the 39-59 Miami Parade, Onehunga, Auckland exploration of new options in the short-term. Sold on behalf of Ports of Auckland
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