Investors shift attention from Sydney to Melbourne industrial assets

16 April 2018

A sharp spike in foreign investor interest in Melbourne’s industrial assets helped to push the city’s sales volumes to $1.2 billion in the 12 months to March 2018, accounting for 42 percent of total industrial sales activity nationally, according to Savills Research.

The data shows the increase in sales volumes is supported by buyers of all classes taking advantage of the low interest rate and low yield environment.

The agency’s latest National Industrial Quarter Time report reveals Melbourne’s sales volumes eclipsed Sydney’s sales volumes, which were $700 million, for the first time on record, with industrial transactions weighted towards Melbourne following several large portfolio transactions.

Savills Australia’s senior analyst of Research & Consultancy, Houssam Yakzan, said portfolio offerings were unlikely to continue to be brought to market in the short to medium term at the same levels seen in recent years, with fewer portfolio sales accounting for overall sales volumes throughout 2017.

He said previous portfolio sales were largely driven by institutional landlords pursuing re-weighting strategies but with these now in place, fewer multi-asset transactions were likely to be offered over the next 12 months.

“For investors, improved leasing conditions and rising effective rents is driving demand for prime assets,” Mr Yakzan said.

“However, the opportunities to acquire assets are becoming increasingly more difficult as the decline in investment-grade stock reaches the transaction stage.

“Developers, A-REITs and private equity groups have all shifted their focus towards developable land across the nation and continue to compete for limited land opportunities, placing upward pressure on already record high land values.”

Recent data from the National Industrial Quarter Time report shows that land values peaked in Sydney in the past 12 months, as they reached levels where ongoing rent rises would be needed to support continued growth in land values.

This has resulted in developers and institutional owners turning their interest south to Melbourne, with recent economic data pointing to a supportive environment for industrial developments in Victoria.

“Strong population growth is likely to continue to support demand metrics and, with a rebound in industrial job advertisements in the latter half of 2017 and a continuation evident this year, there is reason to believe that a positive outlook for industrial assets in Melbourne is more than likely in the short to medium term,” Mr Yakzan said.

Mr Yakzan said new interest in Melbourne land for industrial developments had been largely as a result of positive leasing demand and current land values trading at a significant discount to Sydney.

“A lack of available land in Sydney for industrial developments is also evident, with notable residential redevelopments in the South Sydney and Central West precincts impinging on where developers can build industrial assets,” he said.

“With only the Outer West precinct in Sydney now with any greenfield developable land, developers are being forced to look in other cities, which has resulted in significant growth in land values across all industrial precincts in Melbourne in the 12 months to March 2018.”

In Melbourne’s western industrial precinct, land values grew by 21.4 percent throughout the past 12 months, while the more established south-eastern precinct grew by a record 40.0 pe cent in the same period.

“Industrial land values in Melbourne’s south-east are now sitting at $385 per square metre,” Mr Yakzan said.

 
 

Key Contacts

Houssam Yakzan

Houssam Yakzan

Senior Analyst
Residential Site Sales

Savills Sydney

+61 (0) 2 8215 8980

 

Shrabastee Mallik

Shrabastee Mallik

Director
Research & Consultancy

Savills Sydney

+61 (0) 2 8215 8880