The industrial warehousing market is expected to continue to perform above other sectors of the commercial property market into 2004, according to Jones Lang LaSalle Research.
Tenant demand is expected to remain robust and rental growth expected to be maintained at similar levels to 2003.
According to JLL, eight out of the eleven eastern seaboard industrial sub-markets achieved rental increases, and all have recorded firming of yields in the 12 months to September, 2003.
Head of research at Jones Lang LaSalle, Dr Jane Murray, says the outlook is positive for the industrial market, driven by strong export forecasts for next year and all markets expecting above average increases over 2002-03 levels in industrial production in 2004.
“Over the year to September, 2003, strong investor interest in the industrial sector has lead to a tightening in yields by 25 to 100 basis points across almost all industrial sub-markets and grades of property in Sydney, Melbourne and Brisbane,” she says.
The firming of yields has particularly been evident in Sydney and Brisbane, where prime industrial yields have firmed by 75 to 100 basis points since the third quarter of 2000.
JLL industrial head, Glenn Sommer, says overall tenant demand has picked up in 2003 and is higher than 2002, mainly as a result of a pick up in employment in the industrial related sectors of manufacturing, transport and storage as well as ongoing infrastructure improvements in some areas of Sydney and Brisbane.
Sommer says markets expected to perform well to the end of 2004 are South Sydney and southern Brisbane.
In South Sydney, rental growth is driven by limited supply of existing prime stock and the issue of competing land uses. In southern Brisbane, stronger forecast growth in Queensland industrial production is expected.
JLL Research shows that industrial investment activity across the eastern seaboard continues to be buoyant. In the first three quarters of 2003, 115 transactions (valued at $5m or above) with a cumulative total of $1.8 billion have taken place, compared with 71 deals worth $1.2 billion over the same period in 2002.
Dr Murray says returns from industrial property trusts started exceeding those from the broader equity market from the second quarter of 2001.
Some of the reasons behind the interest in the industrial property sector have been a strong domestic economy and housing sector, Murray says.
Sydney had more than $306 million worth of industrial property change hands over the quarter. Melbourne saw thirteen major sales over $5m this quarter, with continued demand among both investors and owner-occupiers for properties in the growing north / west industrial region.
Brisbane had eight major sales over $5 million, totaling $57 million, including five from the National Self Storage centres portfolio.
Glenn Sommer says demand and momentum has been building throughout the year, with tenant demand being reflected by 1.5msqm of gross absorption for the first nine months to September this year, compared to 1 million sqm of gross absorption this time last year.
“Not only are we seeing investors particularly buoyed by a strong economy, the weight of money and interest rates, we are also seeing continued growth of activity since the introduction of such infrastructure as the Sydney Orbital and the Brisbane Motorway,” says Sommer.
“The third quarter of the year is also traditionally a time of high tenant demand and deal volume,” he says.
“We are receiving a lot of enquiry from clients, tenants and investors looking to finalise their commercial real estate plans prior to the end of the year.
“The strong premium sales market is offset by a slower secondary market, with less demand and minimal rental growth and the potential for higher vacancies in the future.’’
Due to strong investor demand and signs of improvement in tenant demand, 1.3 million sqm of new supply is expected to have completed by the end of 2003, which is above average annual levels.
