In the latest edition of Savills Prospects: Asia Pacific Real Estate Intelligence, the online magazine dedicated to commercial real estate investment in the APAC region, we explore the continuing appeal of logistics real estate in Australia.
Hot topics in this issue of Prospects:
- The industrial and logistics sector in Asia Pacific has proven more resilient to the COVID-19 pandemic than other real estate sectors
- Growth in online retail is driving demand for the sector all over the region
- The cold storage sub-sector is attracting increasing investor interest as food safety and delivery are growing priorities for consumers
According to Paul Craig, CEO, Savills Australia and New Zealand, Industrial property in Australia has experienced strong capital value growth and yield compression with continued demand from both domestic private and institutional groups and foreign investors.
“The last 12 months saw over $6.5 billion of industrial sales (above $5m) across 273 transactions, many of which consisted of portfolio sales as institutional investors acquired prime industrial facilities to be buried into core portfolios.
“Institutional Funds & Trusts were the most active purchasers over the 12 months to March 2020, accounting for over 50% of transaction volumes,” he said.
Michael Fenton, National Head of Industrial & Logistics at Savills Australia, says: “The sector continues to grow in its appeal to global investors as a stable and secure asset class, which will benefit in the post-COVID-19 era from the exponential increase in demand for online retail services.
Mr Fenton continues, “Cold storage is intrinsically linked to the core investment themes of food security and non-discretionary retail spending. Regardless of the state of the economy, consumers still spend on food, and cold storage facilities are at the epicentre of the food supply chain,” he said.
Mr Fenton believes well located warehouse and storage facilities which service populations of high income households are at the forefront of investor attention, particularly within Australia’s east coast industrial markets which has attributed to capital value growth and ongoing yield compression over the last two years.
Savills data shows average prime industrial yields in Sydney’s West precinct are now at 4.5% with Melbourne’s West at 5.6% and Brisbane’s Southside precinct at 5.9%.
A looming global uncertainty of the impacts of COVID-19 on commercial property is certainly evident, however industrial assets may be the safer play with continued demand from tenants in comparison to other asset classes where activity has slowed or been put on hold.
“Over the short to medium term, we anticipate prime industrial yields in these key markets will remain relatively stable. However, the spread to secondary assets will diverge as purchasers will price tenant credit risk more harshly, particularly those adversely affected by COVID-19” said Mr Craig.
For more details, please visit the Prospects website.