With industrial land assets dubbed ‘the new black’, the pressure is moving to refrigerated warehouses, agents say
October 22, 2013
Refrigerated logistics operators owning larger warehouses could be on the receiving end of offers for their properties while others could find themselves leasing from new owners as the popularity of such assets climbs.
Observers are pointing to the recent sale to Propertylink of two properties in Melbourne’s Derrimut and Brisbane’s Parkinson currently on long-term lease to Rand Transport as evidence of the demand.
Senior Research Manager – Industrial Luke Dixon, of property firm CBRE, which released a Viewpoint report on the trend recently, highlights a shift in the dynamics of the refrigerated logistics industry in recent years.
“As the logistics sector has consolidated and automated, technology has made leaner operations possible for clients,” Dixon states.
“Typical asset sizes for new cold storage facilities are 10,000 square metre-plus although some facilities such as the Coles site in Truganina in Victoria are as large as 40,000sqm.
“Some of the largest and most advanced operations have also shifted away from inner-city locations near ports and towards outer city industrial estates on established transport routes and arterial roads.”
Another focus of the report is the marked difference between the rentals and outgoings for refrigerated logistics facilities as opposed to traditional warehouses.
“Given the capital intensive nature of cold storage assets, face rents tend to average between $200 a square metre and $300 a square metre as opposed to typical prime warehouse face rents of between $80 and $120 a square metre,” Dixon said.
“Outgoings costs also tend to be higher, averaging 20 per cent to 30 per cent of net face rents as opposed to 10 per cent for standard warehouse facilities.
“Looking ahead, this suggests that occupiers will be attracted to assets that offer long term certainty over outgoings, particularly energy costs over the term of their lease.”
CBRE Senior Managing Director, Victoria, Matt Haddon points out that investors have recently shown willingness to pay benchmark yields to get a foothold in the sector and acquire facilities with long Weighted Average Lease Expiry profiles (WALEs).
This was highlighted in August by Cromwell Property Group’s acquisition of a new refrigerated logistics facility, also for Rand, in Adelaide for $32.7 million on a yield of 8.2 per cent based on a WALE of 20 years, CBRE says.
This transaction is expected to be followed by further strong evidence of investor demand for this asset class, as several sales at sub 8 per cent yields are mooted to be at “due diligence” stage.
“Yields for refrigerated logistics facilities have sharpened as investors become more comfortable with the role that this asset class plays as a vital component of the infrastructure required to facilitate growth in the global supply of food and agricultural products,” Haddon states.
“We expect this to continue and for yields on refrigerated logistics assets to compress more rapidly than other industrial assets as they come off a higher base and investors chase the strong WALE’s on offer.”
This could be part of trend where international property investors seeking higher yields than elsewhere in the world. Earlier this year, researchers at property firm Colliers international released a report entitled Industrial Is The New Black – A moving story makes just this point.
Why is industrial property so compelling for foreign and domestic investors? A key driver is the relatively high yield that prime grad,” its researchers say.
“Australian and New Zealand industrial property can generate. And from a foreign investors perspective, represents a secure investment environment due to our stable and transparent political environment, strong economic performance, skilled and educated workforce and comparatively healthy transport infrastructure.
“Interest in prime grade industrial assets has led to yield compression for some high end well located industrial assets The chart below shows yields associated with the industrial precincts in Germany, the United Sates, Singapore and Hong Kong.”
They add: “Not only are these yields attractive by world standards but they also compare favourably to other commercial property yields.”
