Perth and Brisbane push industrial property values

Resource-rich states see rents and capital values rise but demand remains high in Sydney and Melbourne

March 13, 2012

Perth and Brisbane are driving firm transport and logistics-related rents and property capital values, according to real estate firm CBRE.

The company’s Asia Pacific Industrial & Logistics MarketView report bolsters its recent analysis on the Melbourne and Sydney markets, which shows some tightening there, despite the gloomy global economic outlook and Australia’s multi-speed economy.

CBRE Regional Director, Industrial & Logistics Services Joshua Charles says the Australian investment market for the sector
was mostly the target of local buyers, particularly emerging fund managers, such as Altis and Aviva, along with private family interest.

"Private buyers are selectively buying those assets that may fall just below the institutional minimum asset size of $20 million to $30 million," Charles says.

"International investors are also considering industrial assets, however, many are taking equity positions with local fund managers rather than buying directly."

The next test of the market will be the sale of two significant industrial investments for Dexus at Brookvale and Blacktown as well as a large data centre at Homebush owned by GPT. The three assets are being marketed through CBRE.

"The eastern seaboard remains the most active with Sydney being the most sought after investment location," Charles says.

"With prime industrial yields for eastern seaboard assets sitting at around 8 percent most institutions and private buyers see very real value in what generally also comes with a sizable landholding."

On the leasing front, the report shows that the resource driven markets of Perth and Brisbane recorded a jump in leasing activity last year for well-located units.

Rents in Perth increased by 3.3 percent year-on-year for 2010 and 2011 and 0.4 percent in the fourth calendar quarter compared with the third quarter.

For Brisbane rents, the figures were up 4.4 percent and 2.1 percent respectively.

"In Perth, leasing activity continued to increase due to unrelenting investment from the resources sector, with rental growth driven by a lack of accommodation over 3,000 sq m particularly in the eastern corridor in precincts such as Jandakot and Latitude 32," Charles says.

"In Brisbane, leasing has remained the preference over owner occupation for many businesses and this has resulted in increased rents across a range of property types."

Year-on-year rental growth was also strong in Melbourne at 4.7 percent year-on-year, underpinned by the city’s tight supply pipeline and record trade through the Port of Melbourne, although no growth was recorded in the fourth quarter.

Rents were flat both year-on-year and quarter on quarter in the other main industrial markets of Sydney, Adelaide and Canberra.

"Cost containment continues to be a major focus for prospective tenants in Sydney and this has led some tenants to move further west on shorter lease terms," Charles says.

"However a lack of quality stock is expected to place upward pressure on prime rents, despite subdued levels of occupier activity.

"The vacancy rate in the Sydney industrial market has not been this low in over a decade and finding quality warehousing is a lot harder than most believe."

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