As we arrive mid-year industrial investment volumes are strong and investors are still hotly contesting properties. Investment in industrial property has reached the same level as that ploughed into the office sector for the first time reports Cushman & Wakefield, while Ray White Commercial is seeing investors still keenly trading assets even though sales volume continues to fall during the pandemic.
The fundamental drivers of the industrial boom are supply change management and logistics says Burgess Rawson’s sales director Michael Gilbert. “The sizzle is in logistics,” Mr Gilbert said. “The area of white box industrial - handling and moving goods – all driven by online retail.
“Going into this online penetration in Australia was about 8 per cent when it was over 17 per cent in the UK. Now we are far closer to matching that figure and it’s not coming back.”
Last mile matters
Online retail continues to soar and especially this year according to latest figures released by the Australian Bureau of Statistics in the first week of July. While the sector has expanded from $745 million in January 2016 to $1.7 billion at the start of 2020, even more telling is its trajectory this year. Lockdowns and social isolation saw online retailing hit $2.06 billion in March, $2.6 billion in April and $2.8 billion in May, according to the preliminary results contained in the ABS’s Retail Business Survey.
The boom has resulted in larger warehouses and ‘last mile’ warehouses dominating demand for industrial property. “The trick to retailing has always been the last mile – where the rubber meets the road,” Mr Gilbert said. “If you took the two sectors [retail and industrial] and the value between the two it shows that the value has moved from retail to industrial. We’ve been preaching this for a few years now.”
Capital has indeed been consistently swinging away from retail and toward logistics for close to a decade – from 22 per cent (invested in logistics) in 2013 to 56 per cent in 2019 –CBRE’s Industrial Market Outlook shows.
What’s more, in the June quarter, industrial investment hit $1.65 million making it the strongest second quarter on record for logistics deals. Overall investment in industrial assets grew threefold in volume in the three months to June compared to the previous quarter, according to Cushman & Wakefield. At the same time investments in office real estate remained low enough to create a situation where industrial investment was essentially at the same level. “This is the first time that has occurred,” Cushman & Wakefield national head of research John Sears said.
All had been driven by the “dramatic shift” to online shopping which has occurred during lockdowns, Mr Sears said.
Leading commercial firms have been quick to ride the wave of a rising market for logistics. Listed firm Dexus bought close to $200 million worth of industrial assets in Sydney’s west and Melbourne in a recent move via the Dexus Australian Logistics Trust. The Sydney property was a cold storage and ambient facility in Greenacre’s Wentworth Street currently leased to Real Dairy and Tomkin. The second asset was the Ford Facility in Merrifield Business Park in Mickleham, Melbourne.
The unprecedented boom in logistics continues despite overall sales turnover dropping. Colliers International’s Sean Thomson said transactions had reduced by almost 50 per cent in the first half of this year compared to 2019. However, more than 60 per cent of deals had been for A-grade stock with values holding strong at pre-pandemic levels. Commercial real estate investment as a whole lifted to $4.3 billion in the second quarter although volume of deals during the first half of this year was 55 per cent lower than last year’s comparable period.
Likewise, Ray White Commercial this week reported that sales activity continued to decline with 47 transactions recorded over the past seven days totalling $111.41 million. “Turnover has fallen week on week since the start of the 2019/20 financial year which is also in line with the uncertainty returning to the economy as the ‘second wave’ of COVID-19 emerged,” the agency reported, noting investment enquiry levels have not been dampened. Assets which come to market are continuing to be hotly contested and investors undeterred by possible rising vacancies. “They are actively seeking out tenanted investments, taking advantage of the discounted interest rates and packages on offer by banks,” said Ray White Commercial’s Anthony Harris.