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I&L sector experiencing record-strong trade

I&L Sector

According to Colliers, the Australian Industrial and Logistics (I&L) sector is experiencing its strongest trading conditions on record, particularly due to the e-commerce boom and record levels of infrastructure investment.

It says over the past 12 months, the sector has broken almost every record, with demand significantly outpacing supply across both the occupier and investment markets, which have driven vacancy rates and yields to record lows.

“The momentum from 2021 has continued into 2022 with occupier demand remaining well above the long-term average,” Gavin Bishop, Managing Director of Colliers, says.

“In Q1 2022, approximately 980,000 sqms was leased nationally (for deals under 5,000 sqms), broadly on par with the level recorded in Q4 2021,” he adds.

“Vacancy rates have fallen further and currently average 2.3 per cent in Q1 2022, down from 2.7 per cent in Q4 2021.”

Colliers notes from a returns perspective, the sector provided a total return of 30.2 per cent in 2021 (the highest on record) and compares to 9.2 per cent for office and 6.3 per cent for retail sectors over the same period.

“In many cases, land values have underpinned the investment thesis in most recent acquisitions, given the significant growth recorded,” Gavin says.

“This is expected to remain the case as developers and institutional groups actively target brownfield and redevelopment opportunities to capture the forecast uplift in rents,” he adds.

“In a large share of cases, a premium is being paid for secondary facilities, which offer a shorter lease expiry profile given the likely positive rental reversion while strong rental growth assumptions are supporting development feasibilities for such sites.”

Colliers says macro drivers for warehouse demand are expected to remain robust in 2022, and another strong year is anticipated for the sector’s occupier and investment markets while rents are forecast to remain elevated with prime rental growth in the order of 6.0-7.0 per cent expected for the Sydney and Melbourne markets.

The investment management company notes if interest rates and bond yields increase at a more rapid rate and I&L yields were to soften, pricing of I&L assets will be preserved due to rising rents, which are forecast to be well above long-term averages over the next five years.

It also says if yields were to soften by 25 basis points, a 7.0 per cent increase in rents would be needed to preserve asset values, which is well under the forecast rental increases in most markets in 2022.

Colliers notes supply chain networks will continue to be volatile because port and shipping delays are resulting in occupiers holding more stock locally. It adds that while demand for last-mile logistics space is expected to grow, it will drive occupier demand in the future.

Its research also shows with vacancy rates at historical lows, a large share of take-up for this year is expected to eventuate via pre-commitments or speculative developments.

For more information on Colliers, click here.

 

 

 

 

 

 

 

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