INDUSTRIAL AND LOGISTICS YIELDS COMPRESS TO RECORD LOWS
The sale of high quality industrial and logistics assets in the last quarter drove down yields and reinforced demand, finds CBRE’s latest MarketView report.
According to CBRE’s Q2 Industrial and Logistics MarketView 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 New South Wales.
“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,” says Kate Bailey, CBRE’s senior research manager.
In Adelaide, super prime yield sharpened 17bps in the second quarter, with 58bps compression on average over the past 12 months mostly driven by demand in high quality assets, particularly in the North West.
“We expect that yields are at, or close to, the bottom of the cycle and any further compression will be minimal,” Bailey adds.
Land values continued to grow with average prices for 1.6ha 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.
New South Wales has enjoyed 9 per cent annual growth over the past 20 years, with North Sydney and South Sydney being the strongest performing regions in recent years.
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.
Matt Haddon, senior managing director for industrial, logistics and retail for CBRE Pacific says 206,000 sqm of new industrial and logistics supply was released to the market in the second quarter.
Thirty-seven per cent of all new supply is in Sydney, with more than 680,000 sqm of industrial and logistics stock 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 sqm and secondary rents growing 1.1 per cent to $110 per sqm.
“We expect this growth to continue through to the end of 2017 and start to slow in early 2018.”
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 sqm. Haddon says this has been driven by increases in Melbourne’s south east which saw growth of 5.9 per cent quarter-on-quarter, 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-on-quarter,” Haddon concludes.