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Woolworths Distribution Centre in Truganina, a key part of the $3.8b Milestone portfolio. Image: Supplied.
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  • Industrial property take-up has hit an all-time high, according to data from Knight Frank, with a 141 per cent rise in pre-leasing activity in Q2 21
  • On the east coast, the amount of available empty industrial property (above 5000sqm) has decreased by 23 per cent in Q2 2021
  • In response to demand, in 2021, Australia is predicted to hit a record 2.2 million sqm new supply of industrial assets on the east coast 
  • Total investment volumes in 2020 surpassed $10 billion, up 63 per cent from the previous year, and volumes in 2021 are now at $8 billion

The COVID-19 pandemic has boosted demand for industrial space, while targeted stimulus measures have provided optimal circumstances for logistical infrastructure investment, culminating in a record industrial boom.

Industrial property take-up has hit an all-time high, according to data from Knight Frank, with a 141 per cent rise in pre-leasing activity in Q2 21, notably on Australia’s east coast, where take-up volumes are 80 per cent higher than the long-run average.

The pandemic’s effects, such as lockdowns and restricted borders, have resulted in growth in e-commerce and supply chain disruption across Australia, prompting a rise in last-mile freight and corporate investment in supply chain management.

The impact of the increase in demand may be seen on the east coast, where the amount of available empty industrial property (above 5000sqm) has decreased by 23 per cent in Q2 2021, the biggest quarterly drop since Knight Frank records began in 2010.

Sydney saw the greatest drop, falling 47 per cent in the quarter, followed by Melbourne with a 23 per cent drop and Brisbane with a nine per cent drop.

Investors and developers are reacting to the rise in demand by expanding the industrial development pipeline, with a record 2.2 million sqm of new industrial supply scheduled to be finished on the eastern seaboard in 2021 and another 2.1 million sqm due in 2022.

The majority of this supply comes from Melbourne, while speculative completions in Sydney and Brisbane are up 77 per cent and 40 per cent respectively from last year.

Knight Frank Australia associate director industrial research Katy Dean said the sector is going from strength to strength and forecasts demand to put further pressure on rents and supply.

“Recent transactions, and particularly the 4.5 per cent initial yield on Blackstone’s Milestone portfolio, have set a new benchmark for the sector,” she said.

“To echo this, shortly after Milestone was announced, PGIM Real Estate and partner Manulife acquired a 90 per cent stake in the 20-asset Fife portfolio from Blackstone for $850 million on a cap rate of 4.5 per cent.”

Ms Dean said lockdowns across the country will likely further demand in distribution and storage as businesses try to accommodate for future shocks, particularly in areas with low vacancy rates, fuelling rent and land-value growth.

Total investment volumes in 2020 surpassed $10 billion, up 63 per cent from the previous year, and volumes in 2021 are now at $8 billion, indicating that they will continue above historical norms this year.

“Many REITs have reported an uplift in the revaluations of their logistics assets over the last quarter and the appetite to acquire or develop assets is pushing yields to new lows in most markets,” Ms Dean said.

“The sector has shown its resilience and growth potential since the start of the pandemic, and the investor pool is expanding rapidly.”

 

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