The industrial property market is on the rise, according to a new report from Herron Todd White.
After seven consecutive official cash rate rises, the property valuation and advisory company’s October Month in Review report shows industrial property activity is slowing in the north, but picking up pace along the east coast and in many capital cities.
Herron Todd White uses an industrial property clock to display market conditions. The peak of the market sits at 12 o’clock, a declining market sits at three o’clock, bottom of market at six o’clock and rising market at nine o’clock.
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The results show Melbourne, Gold Coast and Sunshine Coast at the peak of the market (12 o’clock), while Darwin, Alice Springs and Orange are sitting at three o’clock (declining) market. Meanwhile, areas including Sydney, Adelaide, Canberra, Perth, Cairns, Illawarra, Townsville, Newcastle and Rockhampton are sitting at 9 o’clock (rising). No areas were sitting at the bottom of the market.
Herron Todd White commercial director David Walsh (pictured above) said its industrial specialists on the eastern seaboard all told a similar story about the investment market.
“We are seeing yields for prime assets soften in the order of 50 to 100 basis points from their highs, with funds and property syndicates retreating somewhat as they struggle to structure and balance their target returns for their clients,” Walsh said.
“The mum-and-dad investors watch on closely as their cost of bank funding increases and close the gap between an investment return (and cash surplus) and debt costs.”
Walsh said the Perth Herron Todd White office reported both private and institutional players were looking at the western capital’s industrial property due to the higher yields available.
“However, looking through the Sydney, Melbourne and Brisbane lenses, they’re paying prices that reflect yields as low as 4.50%,” he said.
“This view on yield level tends to be in contrast to local Western Australian-based investors and private family offices who are major players in this market, with Perth characterised by higher-than-average private ownership of large industrial assets.”
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Walsh said market feedback from the more active agents suggested besides leasing, which was still extremely buoyant, the one sector that was still performing strongly was the owner-occupier market up to $15m.
“It almost defies logic; however, in some cases, there would appear to have been no adjustment in price even though we have had a 2.25% increase in our cash rate over a six-month period,” he said.
“A common story I hear is that prior to March or April this year, the larger funds and syndicates were far more aggressive with their acquisitions, often buying vacant buildings and taking on the leasing risk, which in this strong leasing market, was a heavily mitigated risk. As we are no longer in an environment of free money, these larger groups now seem to be taking a wait-and-see approach, giving the owner-occupiers a chance to secure their premises.”
