Colliers International has found that private investors and syndicates continued to dominate industrial property sales transactions during the first quarter of 2009, according to its latest Industrial Market Updates – Q2 2009.
The reports – covering Sydney, Melbourne, Brisbane and Adelaide – revealed lower interest rates and reduced rents have caused a stir of activity across industrial markets.
Felice Spark, Director of Commercial Research at Colliers International, said industrial yields are now stabilising, at an average of between 8 and 10 percent.
“If interest rates began to rise we might start to see some further upward pressure on yields, with further softening expected for the secondary and tertiary grade properties, but overall we are expecting yields to stabilise going forward.”
Colliers International has transacted more than $150 million of industrial property in the year to date. The biggest sales included:
• GEO Property Group’s 35,524 sqm building at 63 Burnside Road, Yatala, Brisbane, for $26.5 million
• A property at 24,750 sqm building at Erskine Central, Lots 5 and 6, Lenore Drive, Erskine Park for $25.5 million, purchased by Valad
• A warehouse owned by Stockland located at 55-63 Bourke Road, Alexandria, Sydney, for $24.15 million
• Trade Coast Central sold its 14,590 sqm property at 45 Taylor Place, Eagle Farm, Brisbane, for $22.5 million.
The report found that there was a noticeable increase in competition to lure and retain tenants.
Malcom Tyson, Managing Director of Industrial and NSW State Chief Executive Officer at Colliers International, said incentives have increased up to 10 percent over the past four months as leasing demand is constrained.
“As the financial crisis has caused a lack of funding for new development, this has left supply in industrial markets low in some markets, resulting in steady rents. However, in an effort to preserve investment cash flow, landlords are beginning to offer incentives to retain their tenants.
“The slowdown in the Australian economy and the lack of available funding has caused the majority of existing tenants to utilise their leasing options and negotiate better incentives rather than relocate to another premises,” said Mr Tyson.
In fact, 80 percent of tenants in Sydney chose to execute their leasing options with the main driver the lack of funding to relocate, according to the report.
Though there were several major lease deals that occurred during the first four months of 2009, including:
• DHL leased 14,450 sqm for five years at 51 Eastern Creek Drive, Eastern Creek. DHL have also signed a pre-lease for 20,600 sqm at 200 Lenore Lane, Erskine Park.
• Manassen Holding Pty Ltd leased 15,735 sqm for 10 years at Interchange Park, 8 Interchange Drive, Eastern Creek
• Reckitt Benckiser signed a seven-year lease for 11,197 sqm at the A2 Westpark Industrial Estate, 107 Erskine Park Road, Erskine Park
• An undisclosed business signed a lease for a 15,720 sqm property at Radius Industrial City, Larapinta, Brisbane, for $172 per sqm.
• A 12,347 sqm property at 42-56 Grand Junction Road, Kilburn, Adelaide, was leased for five years with an initial annual rental of $895,000 per annum net.
Ms Spark said more industrial tenants are expected to make the switch to owner-occupiers as the investment return on buying industrial property outweighs renting.
“The decline in interest rates combined with the softening of industrial yields has caused a positive spread, which means the return on investment is increasing.
“This should encourage industrial tenants to take advantage of positive cash flow and increase the number of transactions during the remainder of 2009,” said Ms Spark.