Are industrial property investors cognisant of their property values in the current market?

With industrial property having been one of the best performing asset classes in Australia since COVID hit, we’ve seen too many examples to count recently, where a fresh valuation of industrial property has seen significant uplift from earlier valuations or investors expectations – and also where clients have sold a property well above what they thought it was worth.

The well-documented increase in demand for industrial assets has compressed yields beyond anyone’s expectations, with many investors are getting a pleasant surprise!

This is a nationwide trend. Industrial property in Australia has experienced strong capital value growth and yield compression with continued demand from domestic private, institutional groups and foreign investors. The last 12 months saw over $12 billion of industrial sales (above $5M) across 217 transactions, many of which consisted of portfolio sales as institutional investors acquired prime industrial facilities to be buried into core portfolios. This was the highest volume of sales (in dollar terms) on record and well above the 10-year average of $5.6 billion (Source – Savills Research).

Thanks to Savills, the following are average market yields for prime industrial property (with change over the past 12 months) in mid-2021:

  • Brisbane Southside 5.00% (-50 bps)
  • Brisbane Northside 5.00% (-75 bps)
  • Brisbane Trade Coast 4.75% (-75 bps)
  • Sydney West 4.00% (-63 bps)
  • Sydney North West 4.00% (-75 bps)
  • Sydney South West 4.00% (-63 bps)
  • Melbourne West 4.38% (-100 bps)
  • Melbourne North 4.50% (113 bps)
  • Melbourne South Eastern 4.38% (-100 bps)
  • Adelaide North 5.75% (-150 bps)
  • Adelaide South 6.75% (-75 bps)
    (Source – Savills Research)

On top of increasing values, banks have been compressing their interest margins (dare we say a race to the bottom?!) in a bid to put long-term facilities on their books.

Whether your strategy is to buy, sell or hold, a review of your current debt facilities or leveraging your position to further invest may be apparent from a conversation with us.

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