This article is from the Australian Property Journal archive
OWNER occupiers are pushing up industrial values in Adelaide’s northern suburbs, taking advantage of low interest rates and no stamp duty on transactions, subsequently bringing down leasing activity.
Meanwhile, investment demand in the market has focused on prime assets in the cold storage and logistics sector with strong lease covenants, according to Knight Frank’s latest Adelaide industrial market report.
“Leasing activity has remained limited as a result of the continuing trend of owner-occupation, where in lieu of leasing their property requirements, occupants are instead deciding to purchase facilities, as well as some businesses delaying decisions due to uncertainty around COVID-19,” Knight Frank SA head of agency, Oliver Totani said.
“Over the past 12 months there has been an increase in owner occupiers purchasing properties, including new entrants to South Australia, particularly vacant land on which to build a facility, in the northern precinct.”
Sales activity has surged for vacant land in northern areas such as Edinburgh and Direk, underpinned by affordability and close proximity to the interstate freight rail line and the recent complete northern connector.
A string of properties on Mirage Rd in Direk have sold or are under contract to owner occupiers
Knight Frank research analyst, Yee Ng said the increase in demand from owner occupiers buying vacant land has led to land values in the northern precinct rising. Over the past six months, average land values for sub 5,000 sqm properties has increased about 8.6% for the inner north and 6.2% for the outer north.
Inner north land values are circa $250 to $260 per sqm, and for the outer north range from $60 to $120 per sqm.
Totani there has been increased appetite from institutional investors for fully leased industrial property, particularly long WALE assets with strong lease covenants.
Sales transaction activity has fallen compared to the same time last year for properties over $5 million as a result of COVID-19 and limited institutional grade opportunities, but the value of sales is higher. Sales for properties over $5 million in 2020 until July totalled $198.24 million, an increase of around 35% on the $146.55 million at the same time last year.
Investment sales were headed by Cromwell Funds Management’s $63.05 million divestment of the Rand Transport distribution centre, also in Direk, to Moelis Australia, and the Owens-Illinois facility in West Croydon that was part of a Charter Hall portfolio sale and leaseback acquisition.
“South Australia’s value proposition and an increasing national appetite for institutional grade stock continued to show a firming bias in industrial yields,” Ng said.
Average blended yields stood at circa 6.50% to 7.50% for prime assets, representing a 75 to 150 basis point spread to prime east coast yields.
Leasing demand for smaller industrial space, in the sub 1,000 sqm market has been underpinned by the local market, while the national and corporate companies had adopted a wait and see approach.
Major leasing agreements this year have included Fastway Logistics leasing 4,348 sqm at the Port Adelaide Distribution Centre, and Fisher & Paykel committing to a 7,027 sqm facility in Direk.
The lower tenant demand has resulted in industrial rents remaining steady over the past year, and they are likely to remain so over the short term. Totani said rental growth is likely to grow over the medium to long-term given increased demand for new or modern accommodation from logistics sectors, coupled with limited speculative supply.
A majority of the prime supply pipeline is pre-committed or owner occupied. Recent completions include the 94,000 sqm expansion of Woolworth’s regional distribution centre at Gepps Cross, the 33,980 sqm Owens-Illinois Glass distribution centre at Kilkenny, and the Drakes supermarkets distribution centre at Kilkenny, of 48,400 sqm.
