Portfolio sales of industrial assets continues to be the driving force in the Australian Industrial investment market, with the 2017-18 financial year recording the third largest year of transactions on record.

 

Portfolio sales made up approximately $1.94 billion of the $5.02 billion worth of industrial product traded over the 2017-18 financial year.

 

Volumes were lifted by three major sale-and-leaseback transactions – the Blackstone acquisition of ten cold storage assets from Swire Cold Storage (20 year sale-and-leaseback), the Qualitas acquisition of ten flour milling and production facilities from Pacific Equity Partners and Ascot Capital's purchase of seven warehouses from the Federal Group (12 year sale-and-leaseback).

 

JLL's Head of Capital Markets, Industrial and LogisticsTony Iuliano said, "Given the limited number of assets placed on the market over the past financial year, premiums were paid for portfolio transactions in order to obtain scale.

"Portfolio opportunities have been a conduit for direct offshore participation across the market, with overseas buyers representing more than 34% of acquisition volumes in the 2017-18 financial year."

 

How big is Australia's industrial investable universe?

JLL's Australian Industrial Investment Review & Outlook 2018 outlines key themes in the Australian market over the 2017-18 financial year.

 

JLL is projecting that Australia's industrial investable universe will reach $77.1 billion in value by 2028.  This equates to 44.1 million square metres in total gross lettable area (GLA).  The current size of the market is approximately $54.1 billion in value, or 31.5 million square metres of GLA.

 

Mr Iuliano said, "We believe the industrial sector is headed for continued strong growth.  According to JLL analysis, the required national annual industrial supply could increase by as much as 1.88 million sqm p.a. over the next decade.

 

"Given an anticipated improvement of longer-term population growth rates and market conditions in Brisbane and Perth, both markets are expected to capture a higher share of national stock by value.  However, Sydney and Melbourne will still require the largest supply of additional floorspace over this period."

 

Industrial returns and pricing:

Mr Iuliano said, "Industrial returns continue to compare favourably alongside other real estate asset classes.  Based upon analysis of data over the past 15 years, the distribution centre and warehouse subclasses both have generated returns above 10.5% p.a. on average.  This level has only been surpassed by Super and Major Regional shopping centres."

Indicative yields reached record lows over the 2017-18 financial year.  At 30 June 2018, the midpoint yield figure of 6.05% was 84 bps below the previous low mark, recorded in December 2007.

Sustained investor demand in Sydney and Melbourne resulted in further yield compression. A shortage of stock placed for sale led to increased secondary yield compression. The spread between prime and secondary yields in Sydney and Melbourne has narrowed.

 

Key themes in the Industrial investment market in 2017-18 financial year:

  •  Transaction Volumes:  Portfolio sales of approximately $1.94 billion drove total transaction volumes of $5.02 billion across the Australian industrial market over the 2017-18 financial year.
  •  Buyers and Sellers: Unlisted Funds were again the largest purchaser, representing more than $1.87 billion in gross acquisitions. Acquisitions from A-REITs were also high, representing $678 million in gross investment volumes.  Meanwhile, Private Companies & Investors, and Corporates, looking to capitalise on sharp pricing levels, represented the largest divestment volumes over the year.
  •  Offshore activity: Direct offshore participation has increased significantly over the past three years.  Overseas buyers represented more than 34% of acquisition volumes in the 2017-18FY.  The majority of direct offshore acquisitions were across the Melbourne (55%) and Brisbane (32%) markets.
  •  Sale-and-Leaseback activity: Corporates looked to capitalise on current pricing levels by participating in sale-and-leaseback agreements. Above $1.6 billion in sale-and-leaseback transactions were recorded in the 2017-18 financial year.

 

Source:


Posted on Thursday, 27 September 2018
by Jessica Hammoud in Latest News

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