Australia’s industrial sector gains impetus
Australia’s posted the second highest industrial investment activity in the Asia Pacific region last year, just behind Japan, and was the most popular destination for cross-border investment, reveals JLL’s latest report.
All-time highs were reached for total transactional volumes, portfolio sales and inbound cross-border capital, JLL’s Australian Industrial Investment Review 2017 finds.
Michael Fenton, JLL’s head of industrial in Australia, says the “gradual institutionalisation” of the industrial sector in Australia has gathered momentum over the past four years.
“Industrial annual sales volumes have had nine consecutive years of growth, with new records reached every year since 2014.”
Last year, volumes reached $6.89 billion, surpassing the previous all-time high. Portfolio transaction volumes grew 155 per cent each year since 2013.
“Never has the sector had such high stock of capital invested, or stock of capital looking to be placed.”
The growth can be partly attributed to the increased offshore demand for Australian logistics assets. In 2016, $2.9 billion in capital – or 39 per cent – was from direct offshore investment.
Sydney and Melbourne accounted for more than 68 per cent of the national sales volumes and were the second and fourth largest markets in Asia Pacific.
Australia’s record-level of infrastructure investment will have a “profound impact” on the industrial market, Fenton adds.
“There are more than $86.8 billion in transportation infrastructure projects currently underway. Over $47 billion of these are expected to be completed in the next five years.”
These projects will “reduce the operating costs for distributors” and “raise the implicit value of existing assets and unlock new markets,” he explains.
JLL’s senior industrial analyst Sas Liyanage says low-interest rates, robust economic fundamentals and the drive for income will influence sustainable expansion in supply.
“Our forecasts anticipate this year will be the highest year of supply since 2008. This will be concentrated in Melbourne and Sydney, accounting for 73 per cent of total supply.”
Liyanage says that supply conditions now differ markedly from those in the previous construction peak, with this year’s expected supply around 34 per cent below that in 2006 to 2008.
What’s more, the majority of new stock coming online is being absorbed by the market.
“During the previous peak, 34 per cent of the newly-built space was vacant upon completion. This year, we are running at an unleased rate of 13 per cent for assets completed or under-construction,” Liyanage adds.