Industrial and logistics yields sharpen to record lows: CBRE / Savills

Industrial and logistics yields sharpen to record lows: CBRE / Savills

17 August 2017

The Australian industrial and logistics market has seen land values strengthen despite record low yields in some cities, observes CBRE’s Q2 Industrial and Logistics Market View report.

Melbourne’s yields compressed by a further 20 basis points in the second quarter to an average of 5.75 per cent, representing record lows for the Australian market.

In Sydney, industrial and logistics yields also continued to compress to an average of 5.9 per cent for super prime assets—the lowest market industrial and logistics yield on record in NSW.

CBRE Senior Research Manager Kate Bailey said that the sale of high quality industrial and logistics assets in Q2 helped drive down yields and reinforced the continued demand for high value assets.

“The June quarter for NSW saw stronger institutional level industrial and logistics transactions, with two significant portfolio sales including the Simonson Industrial sale of six outer west assets for $71 million,” Ms Bailey said.

In Adelaide, super prime yield sharpened 17 basis points in Q2, with 58 basis points compression on average over the past 12 months mostly driven by demand in high quality assets, particularly in the North West.

“For the markets that saw even further tightening in Q2, we expect that yields are at, or close to, the bottom of the cycle and any further compression will be minimal,” Ms Bailey added.

According to the report, land values continued to grow with average prices for 1.6-hectare parcels up 21 per cent year-on-year, driven by exceptional growth in the Sydney market which recorded 40 per cent year-on-year growth.

NSW has in fact seen 9 per cent annual growth over the past 20 years, with North Sydney and South Sydney being the strongest performing regions recently.

In Victoria, land values were up 18 per cent year-on-year, with eight consecutive quarters of positive growth.

Queensland land values rose by 14 per cent annually, with occupiers and developers starting to land bank sites, particularly in the south and west.

Savills Q2 Quarter Time National Industrial report echoes CBRE’s findings.

According to Savills Associate Director Research in Melbourne, Monica Mondkar, further rises in industrial land prices are likely due to limited site availability and rising demand.

“We expect supply to get further constrained as an increasing amount of industrial land gets consumed at the same time being rezoned for residential and commercial purposes driven by rising population and housing demand,” she said.

Meanwhile, Matt Haddon, CBRE’s Pacific Senior Managing Director Industrial & Logistics and Retail, said that a total of 206,000 square metres of new industrial and logistics supply was released to the market in Q2.

Sydney has seen the highest levels, with 37 per cent of all new supply in 2017. Over 680,000 square metres of industrial and logistics stock was added in the first half of 2017, 66 per cent more than in the same period last year.

Despite this, rent growth remains relatively strong, with super prime net face rents increasing 1.3 per cent to $131 per square metres and secondary rents growing 1.1 per cent to $110 per square metres.

“We expect this growth to continue through to the end of 2017 and start to slow in early 2018,” Mr Haddon said.

Melbourne recorded its first quarter of rental growth since Q3 2016, with super prime face rents increasing by 3.9 per cent to $83.1 per square metre.

“This has been driven by increases in Melbourne’s south east which saw growth of 5.9 per cent quarter-over-qua, with availability of well-located super prime assets tightening.”

“The Port of Melbourne and infrastructure investment is driving demand in the west precinct, with strong super prime growth of 3.4 per cent quarter-over-quarter,” Mr Haddon concluded.

The AFR reported this week that commercial property yields are also expected to tighten over the next year due to the Chinese government tightening controls on offshore investment.