Big capital chasing Melbourne industrial parks

Big name funds houses and developers are powering a run of industrial property transactions.

Big name funds houses and developers are powering a run of industrial property transactions that show values in key Melbourne precincts are holding up in the face of interest rate hikes.

The burst of deal-making has been driven by the still strong demand for space and purchasers believe they will be able to ratchet up rents to market levels, even as the slowing economy cools the sector.

In one of the larger deals, global funds manager Barings has swooped on 2-30 Saintly Drive in the Melbourne suburb of Truganina, buying it for $94.1m from Charter Hall’s wholesale Core Logistics Partnership.

The deal was in line with book value and showed a passing yield of 4.7 per cent. It showed a healthy gain for CLP, which acquired the property in 2015 for $41.7m.

It comprises three warehouses totalling 46,933sq m, mainly leased to Catch.com.au and Effective Logistics with a weighted average lease expiry of 2.4 years.

The fund will use the proceeds to back the development of existing land banks, including a multi-level warehouse in Sydney known as Ascent on Bourke.

The acquisition is the first seed asset for the new Barings and Rest industrial partnership seeking to procure a $1bn-plus portfolio of value-add, core-plus, and develop to core industrial assets across Australia.

Truganina in western Melbourne draws large-scale tenants as it is close to key roads and the property will also benefit from future links such as the Westgate Tunnel Project and Outer Metropolitan Ring Road.

Barings director, investment management, James King, said “notwithstanding the current economic environment, we remain attracted to industrial real estate in Australia on a long-term basis”.

“Our ambition is to continue to seek out both development and value-add opportunities,” he said.

Rest chief investment officer Andrew Lill noted the historically tight vacancy rates, sustained tenant demand, and strong long-term outlook for industrial property.

The deal was brokered by Cushman & Wakefield’s Tony Iuliano.

Other groups are also buying. Cadence Property Group has snapped up 125-175 Patullos Lane in Somerton, in Melbourne’s north, from Acure Asset Management for $48.25m. It is occupied by water pipeline systems company Steel Mains and has a weighted average lease expiry of 6.8 years by income

Cadence will benefit from the asset’s position on the Hume Highway, as well as high underlying land value and reversionary upside. It will be held by the Cadence Australian Real Estate Fund Partnership I and another vehicle raised by the firm.

Cadence managing director Charlie Buxon said industrial volumes had been down since interest rates rises began and demand for space had come off the elevated levels seen during the Covid pandemic.

“It’s pulled back a little bit but … that’s what interest rates are meant to do,” he said. “It’s come off its highs but it’s still relatively strong.”

Mr Buxton said the tenant had a term till 2030 and the landlord expected it to stay. “We like investing in Melbourne’s north and have a lot of conviction in the area,” he said.

The deal was brokered by Cushman & Wakefield’s Chris Jones, Mr Iuliano and Adrian Rowse.