Melbourne industrial still hamstrung

THE Melbourne industrial property market has sailed through the global financial crisis, but development activity is still hamstrung by the lack of available credit, according a joint report by the Australian Property Institute (Vic) and Charter Keck Cramer.

Charter Keck Cramer and API (Vic) anticipate limited speculative development through to the end of 2010 as the lack of funds remains a major issue for developers.

Charter Keck Cramer director and API (Vic) industrial spokesperson Phil Cramer said although the squeeze on credit will begin ease over the next 12 months, new industrial construction is forecast to total approximately 250,000 sqm in 2010, which represents the smallest quantity of annual construction since 2000.

The report shows 617,000 sqm and 1,460,000 sqm was constructed in 2009 and 2008 respectively.

Cramer said values also fell and yields increased from the market peak in late 2007.

“The general perception is that the bottom of the market was reached in mid 2009. The preceding 18 month period saw prime industrial values broadly decrease by between 20% – 30% with yields softening from circa 6.75% – 7.25% to between 8.5% – 9.5%,”

Cramer said secondary grade yields were similarly affected, softening to 10% – 11.5%, being an increase of approximately 200 – 300 basis points from the peak in late 2007.

And land values also declined from the peak of some 20% – 30% with development being strangled by the lack of development funds available from the major financial institutions.

“In the second half of 2009, the industrial market stabilised and showed signs of improvement which has coincided with some positive signs in the economy in which unemployment did not peak to the levels expected, interest rates although on the move have remained relatively low, population growth is strong, and business confidence according to the most recent surveys is improving.

“We highlight that at present there are fewer prime grade industrial properties on the market which has been largely due to the recapitalisation of the Real Estate Investment Trusts over the past 18 months,” he added.

Cramer said notwithstanding the obvious problems created by a lack of funds, it is anticipated there will be a continued increase in industrial sales volume with yields starting to firm and land values remaining steady or potentially increasing gradually as confidence grows in 2010 and into 2011.

The report found increasing industrial sales activity over the past 6 – 9 month period and an increase in sales of approximately 25% in 2009 compared with 2008.

The main sales have been dominated by private investors, syndicates and owner occupiers.

Examples of sales to private family interests have been the purchase of the new Red Cross Blood Services facility in Sydney for $63.0 million by the Roberts family; the Kador family who purchased the Corporate Express premises, also in Sydney, for $43.8 million; an undisclosed family acquired the Toll Holdings facility in Altona North for $22.0 million; whilst the Juilliard Group purchased the Computershare facility in Port Melbourne for $18.9 million.

A number of the main industrial investment transactions throughout 2009 are summarised as follows:

Australian Property Journal