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AUSTRALIAN PROPERTY INSTITUTE VIDEO

Industrial yields halved since GFC

Photo: Ted McDonnell
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A DECADE after the global financial crisis, Melbourne industrial property yields have halved but this is probably “as good as it gets”.

The Australian Property Institute and Real Estate Institute of Victoria’s 2018 State of the Market was launched by newly appointed API CEO Amelia Hodge, who introduced the speakers.

Speaking at event, Cushman & Wakefield national director of research Tony Crabb said demand has been fuelled by manufacturing of food and consumable goods, housing products or online retailing.

He said the median vacancy rate was around 6% with the tightest rate at the Port precinct of only 0.5% followed 3.7% within the airport region and 5.5% in Dandenong.

In the Carrum, Monash and Bayside the vacancy rate was 5.6% and in the west the rate was 6.5%, the highest was 8.0% in the east and south-east region.

Consequently Crabb identified only 90 vacant industrial facilities above 5,000 sqm in a market where there are over 2,000 sq km of space.

Of the 90 vacant facilities:

  • 44 are between 5,000 sqm – 10,000 sqm
  • 26 are 10,000 sqm – 20,000 sqm
  • And only 10 for 20,000 sqm plus.

“There are not a lot of options for companies, so they have to go and build,” he said.

Fortunately for occupiers Melbourne still has plenty of available land, although for landlords it means rents have not changed in 20 years.

“In real terms, rents have gone backwards,” Crabb said.

Rents in the north and west are between $65 – $85 per sqm, south east $75 – $95 per sqm and port, $90 – $150 per sqm.

“When you include incentives, which are around 30-35%, rents are in the $40 per sqm,”

Despite the abundance of land and plentiful options to build more facilities, Crabb said yields have tightened due to heightened investment demand from local and foreign investors.

Last week Singaporean listed REIT Cache Logistics Trust acquired nine industrial properties, including six in Victoria for $191 million on an initial yield of 6.44%

And Lendlease’s Australian Prime Property Fund Industrial bought the Myer distribution warehouse in Altona North from Dexus for $38.15 million on a circa 6% yield.

According to Crabb, yields have more than halved since the GFC in 2007/2008 when it moved up to 13%.

Cushman & Wakefield research shows yields are around 5.75% – 6.75% in port, 5.75% – 7.00% in the south east, and 6.00% – 7.00% in the north and west.

Having said that, Crabb believes yields are at the top of the cycle.

“Now is probably going to be as good as it gets,” he added.

Meanwhile digital technology will play a larger role in the industrial sector, which presents new risks and opportunities.

The most notable is driverless trucks, drones and robots.

Crabb said the Mercedes Benz Future Truck 2025 project will change the sector, with goods able to be delivered by driverless trucks.

“The cost of everything is headed towards zero because digital technology drives costs lower.

“In China, Foxconn the manufacturer of Apple products has replaced 60,000 factory workers with robots and is aiming to be fully automated.

“So even in China, where human labour is cheap, it is no match for robots,” Crabb said.

Australian Property Journal