Australian industrial and logistics property is currently the most sought after property asset class, over $3.5 billion has traded within the sector this year, underpinned by favourable structural tailwinds which continue to positively impact the division.
The rapid increase in e-commerce coupled with expansion requirements from supermarkets and pharmaceutical companies, has had a positive impact on Australian REITs (A-REIT) with exposure to industrial property.
Colliers International’s latest report ‘Industrial Cap Rate Analysis’ has found that despite headwinds as a result of COVID-19, the impacts of the pandemic on the Australian industrial and logistics sector have been modest to date, particularly when compared to other real estate sectors.
“Australian industrial and logistics property is currently the most sought-after property asset class among a large share of institutions and private investors, underpinned by favourable structural tailwinds which continue to positively impact the sector,” Gavin Bishop, Head of Industrial Capital Markets at Colliers International said.
“While limited transactions have been recorded in other real estate sectors, over $3.5 billion has traded within the industrial and logistics sector this year and recent transactions support the firming of cap rates provided by the AREITs,” he said.
This included DWS’ recent acquisition of the remaining 50 per cent stake in the Coles cold storage distribution centre at Parkinson which was sold on a yield 52 basis points firmer than the first 50 per cent stake in mid 2019.
“With investment in the sector remaining significant at or during the COVID-19 period, headlined by 11 $100 million + acquisitions, capitalisation rates continue to compress, evidenced by the completion of the June 2020 A-REIT reporting season,” Gavin said.
Beyond the macro themes, multiple A-REITs are reweighting their portfolios to the industrial sector and include Charter Hall, Dexus and Stockland.
Given this, Gavin said that there will be continued pressure on cap rates within the prime market, particularly as the spread to the bond and cash rates are well above historical levels.
“Alternatively, there may be some modest upward movement in secondary cap rates as risk becomes priced in, however, in saying that there has been very few secondary assets to trade in 2020 and those that have sold have been highly sought after and are showing very limited yield softening at this stage,” he said.
Luke Crawford, Associate Director, Research at Colliers International said its analysis of the June 2020 A-REIT reporting season showed that capitalisation (cap) rates for industrial assets firmed on average by 12 basis points since December 2019 and highlights the resilience of the industrial sector.
“Notably, this contrasts to steady or modest levels of softening in some cases within the office and retail sectors,” he said.
Luke said cap rate compression has been driven by continued favourable fundamentals and a significant weight of capital chasing defensive industrial assets with strong demand from both domestic and offshore investors.