Why demand for Australian industrial property is set to continue

Several factors have come together to create a perfect storm of soaring demand for industrial property across many parts of the world.

Australia is no exception, as investors who have traditionally relied on residential property and the share market to drive their investment portfolios and retirement strategies are increasingly turning to the potential of higher yields from industrial real estate.

The national industrial vacancy rate has fallen to a historic low of 2.24%, says a new report from CBRE, reaching just 1.4% in Sydney and 1.54% in Melbourne.

“In 20 years, I have not witnessed such vast volumes of leasing enquiry,” says Cameron Grier, CBRE’s regional director of Industrial & Logistics.

This has not been restricted to the major east coast markets, he added, with South Australia and Western Australia also experiencing record demand.

The industrial sector has been supported by strong underlying fundamentals of robust demand and modest supply. With Australia’s historically low interest rates, there is a strong appetite for investments in the industrial property sector right now due to its potential for competitive yields with long-term capital growth prospects.

Demand for industrial property in Australia should continue to rise – particularly as institutional investors gear their strategies toward greater exposure in the industrial sector and build their investment portfolios.

Industrial space was already in high demand in many advanced economies before the COVID-19 pandemic, but the accelerated growth of e-commerce and restructuring of supply chains that have occurred since its emergence has caused a further sharp spike in requirements for warehousing and logistics space.

At the same time, investors seeking competitive returns, companies looking to take advantage of the low-rate environment to acquire their own industrial premises rather than renting, and government-driven infrastructure developments are driving up demand across regional locations.

Upward momentum in prices locally is also being buoyed by strong foreign demand for Australian commercial property. In the first quarter of 2021, $2.4 billion flowed into the sector from abroad, and in April a portfolio of 45 Australian industrial assets sold for almost $4 billion to Asian investors.

Property experts don’t see demand changing soon. CBRE forecasts that an additional 2,500,000 m2 of industrial space will be required in Australia over the next five years to support the growth of online shopping alone.

“E-commerce last year experienced five years of growth in just 12 months and now accounts for around 13% of all retail sales in Australia,’’ notes CBRE’s Industrial and Logistics Vacancy Report H1 2021.

The Trust’s current property portfolio consists of eight industrial property assets: four in Mackay, one in Carrara, one in Darra, Queensland and one in Gillman, South Australia. The eighth property at Carrum Downs, its first in Victoria, settled in June 2021.

The Trust’s primary objective is to maximise potential investor returns diversified by both geographical location and the industries in which the tenants operate.

Our strategy is to look for quality investment properties that have tenants of good convent with the option to value-add through tenant-led expansion. We expect the logistics sub-sector to perform particularly well.

As with any investment, there are risks associated with the potential rewards from industrial property investments and it is important to ensure the investment risk profile suits an investor’s personal circumstances. A licensed financial adviser can help investors who may be unfamiliar with this investment option. 

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