THE PROPERTY DEVELOPMENT REVIEW
pricing reflects / is relative to the cost of capital. Our most active buyers in South Australia currently are private investors, syndicators and owner-occupiers. Owner-occupiers are actively seeking short WALE assets with no further options and in many cases have had a propensity to pay a higher price than say the Investor market who are yield driven. Are pre-lease transactions accelerating industrial supply and how have increased building costs impacted new supply coming to market? Pre-lease transactions has certainly accelerated supply over the past 24 months, particularly in the Outer North where land values were (and continue to be) considerably lower than our core industrial precincts, albeit where market rents are almost on par. Construction costs appear to have now somewhat stabilised. The main drivers behind an increase in economic rents is weighted toward the land appreciation and softening in cap rates. It’s the landowners who can put the land input at $0 or close to (ie. those with surplus development land on an existing Estate or those who have owned the land for many years) can be the most competitive on securing the pre-commitment deal (easier for them to make their feasibility stack up). Pre-lease requirements in South Australia have remained steady, due to our diverse economic drives such as defence, F&B, health, Tech, e-commerce, overlayed with a number of occupiers seeking a new home after being displaced as a result of the State Governments compulsory acquisitions for road widening.
What have been some of the more significant industrial transactions in 2023?
There have been minimal transactions thus far, however settlements should start to flush through in Q4 2023 (deals that are progressing through due diligence now). The low transaction volumes throughout 2023 reflects the conditions, where vendors are in somewhat of a holding pattern and buyers patiently waiting for good value propositions. Sales activity in the smaller end of town (sub $5M price point) continues to be very active, particularly from the owner-occupiers and private investor buyer profiles.
What types of industrial assets are in most demand from a) owner-occupiers and b) investors?
Answered in previous responses.
Have you seen a shift in developers moving away from residential projects to industrial given challenges around building costs? Any other industrial trends pertaining to the industrial sector? We have experienced traditional residential investors, branching out and buying smaller off-the-plan industrial investments. The net lease basis often associated with industrial investments is super attractive for investors, not to mention no stamp duty in South Australia, making them the ideal super-fund proposition. Traditional infill development sites that pre-covid would have been viewed as clearly defined residential development site, are now being considered for industrial applications. This is on the back of substantial rental and capital value growth for inner-metropolitan facilities and the sheer lack of opportunity for industrial buyers to secure such premises close to population masses.
What is your outlook for 2024 in the industrial space?
There remains persistent demand from occupiers seeking accommodation, for lease and purchase and we expect this to continue into 2024. Manufacturing in the high technology (Defence, Renewables and Medical) and mainstream manufacturing sectors remains an important growth area in the greater industrial market taking up a significant percentage of vacant space. The longer gestation period for manufacturers to move to larger premises is significantly longer than Logistics and we see a healthy pipeline of manufacturing deals into 2024. Transport and Logistics also is holding well with a number of larger pre-commitments in the 2024 pipeline.
October / November 2023 – 105
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