PropTrack Industrial Snapshot 2021

Highlights

• Australian industrial assets have performed extremely well in recent years, outperforming other commercial asset classes.
• The accelerated growth in e-commerce seen since the onset of the pandemic is supporting occupier demand, with industrial vacancy rates falling to record lows across the country.
• The resilience of industrial assets in the wake of COVID-19 is driving more investors to the sector and we saw record high sales volumes over 2021.
• Industrial properties have overtaken offices to become the asset of choice among offshore buyers.
• Local investors are increasingly competing with offshore buyers, with cross border capital accounting for the highest proportion of sales on record in 2021.

How are search volumes tracking?

Unlike many other commercial asset classes which have faced challenges since the onset of COVID-19, the industrial sector has arguably benefited from the pandemic.

Vacancy rates, which had been trending down during the years prior, hit record low levels in every state during the second half of 2021, according to CBRE Research. National industrial vacancy was estimated by CBRE to be just 1.3% in the second half of 2021, down from 6.3% in the second half of 2019.

Further illustrating the strength of the occupier market, the supply of new industrial space in each of the last three years has exceeded the historic average level.

E-commerce has been a key driver of occupier demand, with COVID-19 accelerating the take up of online retailing.

Looking at how search volumes are tracking on realcommercial.com.au, there has been a growing divergence between searches to buy and searches to lease. Occupier demand appears to have peaked in March 2021, while buyer demand peaked in October 2021.

Sales hit record levels in 2021

Over 2021, $28 billion worth of $1 million plus industrial sales transacted, the highest volume on record and up 72% from the previous year.

Driving the result were several large portfolio deals including the $3.8 billion purchase of Blackstone’s Milestone logistics portfolio by global investment group ESR, and the sale of West Sydney’s Moorebank Logistics Park by Qube Holdings to Logos Property Group for $1.67 billion.

Australia’s industrial sector is also attracting growing interest from offshore buyers. In 2021, Real Capital Analytics estimate 41% of the volume of $1 million plus industrial sales were to offshore buyers, the highest proportion on record.

Where are investors looking to buy?

In New South Wales, Alexandria further cemented its spot as the most searched for suburb among those looking to buy industrial property, accounting for a larger proportion of searches compared to the previous 12 months.

In Victoria, Epping remained the most searched for location by buyers for the second year running, closely followed by Bayswater, Thomastown and Dandenong South.

Across Australia, the suburbs that have seen the strongest growth in searches to buy industrial property over 2021 were O’Connor and Belmont in Western Australia, Norwood and Beverley in South Australia, and Cheltenham in Victoria.

Where are businesses looking to lease?

Consistent with buy searches, Alexandria was the most searched suburb among those looking to lease industrial properties in New South Wales, with demand growing over the past 12 months.

Buyers are increasingly looking for industrial properties with a freezer/cool room. Picture: realcommercial.com.au/for-sale

In Victoria, Port Melbourne was the most searched suburb by those looking to lease. Interestingly, Port Melbourne didn’t rank in the top 10 suburbs among those looking to buy.

The Gold Coast’s Burleigh Heads remained the most searched suburb by those looking to lease, however it has seen its proportion of searches decline over the last 12 months.

In Western Australia, growing demand saw Osborne Park overtake Malaga as the most searched suburb, while in South Australia, Adelaide retained its top spot.

Floor space requirements

Overall, space requirements marry up between those looking to buy industrial property and those looking to lease. In both cases, mid-sized industrial properties were the most in demand, with 200-1000 sqm opportunities accounting for just over 50% of searches.

Sub-100 sqm industrial properties were the least in demand, accounting for just 6.2% of buy searches, and 7.3% of lease searches.

What are investors looking for in the industrial properties they buy?

Among those looking to buy industrial properties, ‘crane’ remained the most included keyword, with instances rising by 11% over the past 12 months. Keywords relating to ‘freezer / cool room’ followed, rising a whopping 87% year-on-year.

Growing demand for storage space has seen ‘storage’ leap into third place, with the inclusion of this keyword in 2021 more than doubling compared to 2020.

The relative resilience of the industrial sector in the wake of COVID-19 is driving more investors to these assets, and searches for ‘tenanted investment’ have increased by 48% over the last 12 months.

What are businesses looking for in the industrial properties they lease?

Similar to buy searches, ‘crane’ was the most included keyword among those looking to lease industrial property, recording a rise of 37% year-on-year.

Tenants are also more likely to be looking for storage spaces, with the incidence of this keyword seeing the strongest growth over the past 12 months, up 107%.

Other keywords that have recorded notable rises in lease searches include ‘freestanding’ (up 87%), ‘hardstand’ (up 37%), and ‘workshop’ (up 37%). In contrast, searches including ‘office’ and ‘grease trap’ recorded significant declines.