This article is from the Australian Property Journal archive
A SURVEY has revealed that 86% of investors favour the Australian logistics and industrial market over other commercial property sectors, ahead of debt markets and alternative assets, with $45 billion of capital circling warehouses and sheds down under.
Cushman & Wakefield’s 2024 Australian Logistics & Industrial (L&I) Capital Markets Outlook Report, local and offshore investors signalled a shift in intentions from 2023, with one in two confirming that the gap in purchaser and vendor pricing expectations prevented capital deployment in 2023. Now, almost nine in ten (89%) plan to invest in Australian L&I assets in 2024.
Of these, 84% expect to do so in the first half of the year and many in the current quarter – subject to asset availability. The survey confirmed that unlisted funds plan to be the most active purchasers.
Conversely, just 26% of investors expect to divest assets, foreshadowing heightened competition for assets.
From a pricing standpoint, 65% of investors anticipate less than 25 basis points of further softening in the first half of 2024. This follows 115 basis points of prime yield softening recorded nationally during 2023. Super funds, developers and offshore funds were the most aggressive on pricing outlook, while domestic investors expected the highest yield expansion rates (over 50-plus bps).
The report noted that with the anticipated Reserve Bank of Australia pivot to interest rate cuts in the second half of 2024, the current yield expansion cycle is expected to end by the June quarter. The unwinding of book values to current market yields is expected at this point, which will trigger more transactional activity.
Cushman & Wakefield data shows $5.1 billion of investment in Australia’s L&I market was recorded across 142 assets in 2023. This was a dollar value decline of 32% from 2022, although was more moderate than the 65% fall in office investment.
The average L&I asset price point of $35.6 million in 2023 reflected the predominance of smaller, single-asset transactions, down from around $50 million in 2022.
“This reflects tightly held assets and capital targeting infill markets, which tend to have a smaller footprint,” Cushman & Wakefield said. The data showed 61% of investment was in short weighted average lease expiry (WALE) assets in infill markets, growing steadily from 39% in 2020.
“We saw a significant pool of capital remain cautious in 2023, but as the yield expansion cycle nears its peak and the bid-ask spread begins to narrow, most L&I investors are poised to move on available assets,” said Luke Crawford, head of logistics and industrial research, Australia at Cushman & Wakefield.
“Our survey confirms that the Australian L&I market is considered the most attractive global commercial property asset class. We know that new offshore capital sources are looking to enter the market and build scale quickly, which should usher in the return of premiums for portfolio deals in 2024.
Smaller infill markets and shorter WALE assets that offer rent reversion will continue to be in demand, Crawford said, although a greater focus on income security should also re-focus the market on high-quality long WALE assets.
Two-speed rental market to emerge
Occupier markets remained healthy in 2023, with gross national take-up of L&I space running well above the 10-year average to total just over 3.6 million sqm. National L&I vacancy is running at a low 1.2%, and national weighted prime rents grew by 21.7%, led by Sydney and Melbourne.
“Rental growth in 2024 is forecast to ease from the 20%-plus levels recorded over the past two years due to a pick-up in supply. However, a two-speed market will emerge, and supply-constrained infill precincts will outperform,” Crawford said.
Landlords of high-quality assets hold an optimistic view. Australia’s largest list pure-play industrial property trust, Centuria Industrial REIT, upgraded its funds from operations guidance this month on the back of ongoing strong rental growth across its $3.8 billion portfolio, and expects more is on the way.
