Industrial in demand as funds flee secondary retail
Cashed-up property trusts are bolstering demand for industrial property classes in the key Melbourne and Sydney markets as they flee from stressed retail assets like secondary shopping centres.
Institutional players are shifting portfolios from retail to logistics.Credit: Shutterstock
In their separate takes on the state of the popular ‘sheds’ market, agents Knight Frank and CBRE are unfazed by the disruptive repercussions of the coronavirus – at this stage at least.
But signifying more uncertain times, they identify the growth of sale and leaseback deals as buyers opt for established tenants on extra long tenures.
Vacancies are also increasing in some non-prime pockets, while in others rents increases are not keeping up with valuation increases.
Knight Frank notes the enthusiastic reception to recent capital raisings by the real estate investment trusts (REITs) such as Charter Hall Prime Industrial’s $725 million oversubscribed whip ‘round in October last year.
“With industrial property in strong demand, major institutional players have responded by shifting the balance of their portfolios away from underperforming bricks and mortar retail to logistics real estate,” the firm’s head of industrial logistics (Victoria) Gab Pascuzzi said.
“Many of these REITs are reporting occupancy rates in the high 90 per cent range, with above average take-up levels and a reduction in vacancy rates.”
CBRE tips an uptick in infill developments in the Sydney market, especially in the central west and metro west where several REITs hold large parcels of land and are set to start projects.
“Rental growth is expected to be more tempered in most markets in 2020 due to the significant growth they have seen over the last few years and large increases in supply that has occurred in some markets such as outer and north west,” the firm says.
Despite this, CBRE expects transactions to hit sub 4 per cent yields in the “right” Sydney locations, “as a result of the weight of capital trying to break into the industrial sector.”
The firm says sale and leaseback deals are gaining favour as buyers seek assets with extra long leases, strong covenants and “attractive review structures.”
Last month, discount retailer Aldi confirmed it had engaged agent JLL to gauge interest in a $700 million sale and leaseback of four of its eastern seaboard distribution centres.
Last year KKR sold the three Arnott’s factories owned by Campbell Soup, which the private equity group acquired in July 2019 for $3.14 bn.
Centuria Industria REIT acquired the Adelaide and Brisbane assets for $236m, while two Charter Hall funds bought the Sydney factory for $397.8m on a 32 year deal.
Reflecting the desire for longer tenures, Charter Hall Industrial this week secured Japanese retailer Uniqlo on a ten-year pre lease over 46,000 sq m, at its Midwest Logistics Hub in Truganina in western Melbourne.
Uniqlo joins logistics group Toll Group, which taken up 44,000 sq m of temperature-controlled space at the 60 hectare site, on behalf of confectionery client Mars Wrigley.
Knight Frank associate director of research Finn Trembath said Melbourne’s supply of new industrial stock of 439,000 sq m in 2019 was below the long term average of 537,000 sq m.
This year, however is expected to deliver 753,000 sq m, with the west contributing 57 per cent of this supply.
The ecommerce sector continues to exert a big influence, taking up 570,740 sq m of prime space in 2019 compared with 391,286 sq m in 2018.
In Sydney a decade high of 677,000 sq m of new space was delivered in 2019, with this number expected to be eclipsed by this year’s 760,000 sq m.
Source: Read Full Article