SA MARKET OVERVIEW
SOUTH AUSTRALIA
Jordan Kies - Director CBRE Capital Markets - Industrial & Logistics
Industrial has been the strongest performing and most resilient asset class for many years now. Do you anticipate that continuing in 2024? The industrial property sector has fared well despite the broader decline in economic and market conditions, largely underpinned by the ongoing demand from Developers and or Occupiers. The Investor appetite and pricing was at a record high during the low interest rate environment which priced out many Occupiers. Consecutive increases in interest rates in 2023, initially had a softening effect on Investor sentiment, but with the near end of this interest rate cycle, investors are returning, attracted by value add propositions and the significant rental growth experienced in the market over the same period of time. We’ve experienced material rental growth in the past 24 months which has been an underlying factor behind the sectors resilience and attractiveness. Given historically low vacancy rates across Australia, what impact has this had on rents and industrial property values? The low supply and continued occupier demand has forced a transition within our market into a development cycle which South Australia hasn’t really experienced since pre-GFC. Land appreciation, overlayed with softened capitalisation rates and somewhat higher than ‘normal’ construction costs have meant, higher economic rents are needed for such developments to feasibly ‘stack-up’. Such higher economic rents are being achieved in location specific circumstances. What is the current and foreseeable appetite from both investors and owner occupiers for industrial property? Investors are seeking value-add opportunities where they can access upside, whether via positive rental reversion and or expansion works to increase the GLA. We expect strong owner-occupier demand will continue into 2024, particularly for improved sites that don’t have risk associated with construction delays and costs. Assets that are underpinned by land value and are close to (or below) replacement cost have been on the radar for many buyers (investors and owner-occupiers) and we expect this appetite to continue into 2024.
JORDAN KIES
Is e-commerce still driving demand for new supply?
Yes, but e-commerce demand has tapered off somewhat since the peak of covid where both non-discretionary or discretionary goods were in high demand in society due to lock downs and higher disposable income. Discretionary occupier demand is holding up with a slight reduction in requirements in non-discretionary (noting many of the non-discretionary industrial requirements were satisfied over the last 24 months). What has the investment/divestment approach been from some of the bigger players like Goodman, Dexus, Charter Hall, Centuria and have there been any new entrants with aggressive acquisition plans? Early signs of groups exploring divestments of non-core, secondary assets in the event they can achieve book value or better. The larger players continue to build pipeline via developments – predominately now through pre-commitments rather than spec-building. Acquisition appetite for long WALE assets have reduced, unless
104 – October / November 2023
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