Industrial Yields Continue to Firm in Record Sales Year

Melbourne Industrial sales highest in over a decade at nearly $1.9 billion

A record industrial property investment sales market of nearly $1.9 billion in the year to March has seen yields in Melbourne heading back to pre GFC levels as a broad cross section of investors chasing better returns focus on well located and securely leased assets, according to Savills Australia.

Savills Victorian research manager, Monica Mondkar, said the $1.89 billion of industrial property sold was up on last year’s record of $1.75 billion, and more than 40 percent up on the five year average of $1.21 billion. Industrial properties valued over $30 million accounted for 56 percent of the total sales by value while the North-West region that accounted for the greatest dollar volume with 62 percent of total transaction value.

Ms Mondkar said Trusts were the biggest purchaser class with 30 percent of the total sales while foreign and private investors joined in the competition to drive down yields which had continued to firm over the last five years from a range of 7.75 to 8.75 percent in 2011 to a current 6.25 to 7.5 percent.

“Yields have been firming steadily over the last five years with record sales in the last two years accelerating the downward pressure to a point where sub 7 percent transactions are now common,” Ms Mondkar said.

In the latest deal brokered by Savills Industrial Investments team, a local developer paid $6.23 million on a 6.9 percent yield for a 5,947 square metre office and warehouse facility on a 1.1 hectare site at 337-349 Foleys Road, Derrimut.

Located on the highly regarded Paramount Industrial Estate, the property was sold with a five year lease to Frucor Beverages at a current passing net rental of $433,000 per annum.

Mr Jones said a number of factors were driving the current industrial investment surge.

“What we are seeing in 2016 is a continuation of a much stronger investment market which began to show positive signs in 2013 and has now posted the highest industrial investment total in more than decade.

“There are a number of key drivers, the impact that low interest rates has on borrowing being the chief among them but also on returns from other types of investment, and this has led to a rise in the number of syndicates, high net worth individuals and self-funded retirees in the market chasing better yields,’’ Mr Jones said.

He said low interest rates had also adversely impacted the income of some self-funded retirees with conservative low-yielding investments and this had led to a significant rise in SMSFs seeking higher yielding assets.

View the Melbourne Industrial Briefing, which includes research that compares yearly sales over the past 10 years.

Mr Jones forecast yields to settle below 7 percent with blue chip assets to see more sub 6.5 percent results as the availability of office market investments dwindled and the competition for industrial assets intensified.

“We have recently witnessed super prime activity below 6 percent and there is little doubt we are going to see more of that as the year progresses given the current demand for industrial assets,” Mr Jones said.