This article is from the Australian Property Journal archive
A RISE in assets sales have lead to yields and capital values stabilising in the industrial property sector, according to Colliers International.
Colliers research suggest that investment yields in Sydney have stabilised between 8% and 9% for prime grade stock and 8.5% to 10% for secondary grade, whilst in Brisbane it has remained steady, with prime asset yields ranging between 7.75% and 8.75%.
And managing director of industrial Malcom Tyson predicts the reemergence of REITs will only serve to lift capitalisation rates in 2010 and fuel the sector.
In December last year Colliers International negotiated the first industrial sale to a REIT, Dexus Property Group in almost 18 months, which paid $46.1 million for a major holding in the southern Sydney suburb of Matraville.
Tyson said the sale indicated a turnaround in the buying profile after the sector was dominated by private investors, private syndicates or owner occupiers in 2008.
And he predicts demand will only continue to rise driven by a distinct lack of new development in the short term, improving economic fundamentals and businesses planning for future growth.
This is evident in Melbourne where just 112,000 sqm of industrial space was completed in the past six months and a mere 195,000 sqm of space is expected to be completed this year.
And already discount department store retailer Kmart and the listed Salmat Group have pre-committed to 75,000 sqm and 22,000 sqm respectively.
In Brisbane, the outer south precinct of Larapinta, Heathwood, Parkinson and Browns Plains is fast becoming Queensland’s emerging industrial hub, meeting demand for large allotments with construction of the 400,000 sqm Radius Industrial Park and 11,000 South West One due for completion this year.
Colliers’ director of commercial research Felice Spark noted that face rents have also stablised, supported by incentives of around 10%.
“Prime grade rents in Sydney continue to range from $95 per sqm to $185 per sqm to average $112/sqm, while secondary grade rents are hovering between $70 per sqm to $150/sqm to average $96 per sqm.
“In Brisbane, the current average rent is slightly higher at $119 per sqm with the TradeCoast region emerging as the City’s strongest performing precinct with net face rents averaging $134 per sqm,” she added.
In contrast to this trend, face rents for smaller premises in Perth are falling, which is due to a two-tiered rental market.
She said high levels of smaller stock remains to be absorbed which, in turn, is placing pressure on rents.
“Market rents are holding relatively stable, at about $80 per sqm to $100 per sqm across the City, assisted by growing business confidence and certainty as a result of improvement in resources activity and the economic outlook for Western Australia.
“Industrial rents for prime grade assets should hold and we might see some growth given the tightness of existing stock and also limited competition amongst developers in pre-leasing, given the continued difficulty in obtaining debt funding for new development,” Spark concluded.
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