Australia’s industrial sector is set for another year of strong growth, with $30 billion in capital expected to be deployed and demand outweighing availability of quality stock, says JLL.
JLL’s annual report, Australian Industrial Investment Review & Outlook 2020, finds the Asia Pacific region is attracting a greater percentage of global capital, driven by GDP and population growth.
Australia represented 11 per cent of cross-border transactions in the region in 2019, ranking fourth behind China, Japan and South Korea.
JLL estimates the current capital stock by value sits at $88.2 billion, or 55.2 million sqm of gross lettable area. This is expected to reach $114 billion in value by 2024.
Tony Iuliano, JLL’s head of capital markets, industrial and logistics, expects Sydney to remain the largest market by size and capital value.
“However, Melbourne’s share of physical stock in 2019 was only just behind Sydney, with Melbourne at 28 per cent versus Sydney at 29 per cent.”
Demand for industrial assets in Australia continues to rise, while vacancy across the Eastern seaboard states remains relatively low at 3.8 per cent.
“The Australian market offers a liquid, stable and strong return performance trend, low interest rates, a weakening dollar, and robust growth mainly supported by infrastructure expenditure and population growth,” explains Sass J-Baleh, JLL’s director of industrial research.
“Industrial property has emerged as a mature, institutional grade investment sector, and plays a vital role in a diversified investment portfolio,” she adds.
JLL recorded approximately $4 billion in industrial investment sales (for transactions of $10 million and over). This is 10 per cent above the 10-year annual average, although $1 billion in sales occurred in the last month of the year.
Multiple capital sources competed for assets in 2019, with 86 per cent (or $3.5 billion) of total national sales concentrated on the Eastern seaboard.
Offshore capital sources – primarily from Hong Kong, USA, Singapore, Germany and Switzerland – remained active participants, acquiring $0.9 billion in 2019.
REITs accounted for 43 per cent of acquisitions and only 30 per cent of disposals.
“Over 2019, institutions remained the biggest buyer group, representing over 80 per cent of total transactions. The top three buyers – Charter Hall, Lineage Logistics and Centuria – accounted for 45 per cent of total national sale activity,” Iuliano adds.
“The Australian industrial market is in a process of adjustment to a lower yield and return expectations relative to historic benchmarks. However, when you benchmark Australia relative to global industrial markets, Sydney and Melbourne remain attractively priced relative to several gateway cities,” Iuliano concludes.