Industrial market due to boom

Colliers reports Australia’s industrial and logistics sector is due to boom in 2022 with almost $50 billion worth of capital still available for purchase.

This follows an unprecedented year in 2021 when nearly every record was broken, and investments were almost $16 billion worth.

According to Colliers’ 2022 Industrial Investment Review, investments were up 191 per cent from 2020 when the total was $5.5 billion.

The 2021 feat beats the 2016 record of $7 billion. Increase in investments in the sector occurred globally. There was a 39 per cent increase in 2021 compared to 2020.

E-commerce, infrastructure investment and automation remain strong and are helping the market conditions stay buoyant.

Population growth is forecast to pick up following the relaxation of international border rules.

Gavin Bishop, Colliers Managing Director for Industrial says, “while it was a record year on the investment front, the weight of capital-seeking opportunities, which is estimated to be $50 billion, far outweighs the availability of assets for sale.”

“Private investors, corporates and selected institutions looking to recycle capital are expected to take advantage of this factor in 2022, and large portfolios will continue to be brought to the market,” Gavin says.

“It is likely that new pricing benchmarks will be set in 2022, and we expect yields have a little further to run despite the 110 basis points of compression recorded in 2021,” he adds. “By mid-2022, average yields in Sydney and Melbourne are forecast to be under 3.50 per cent for prime core assets.”

While yield compression has driven asset performance over the past two years, it is likely to be supported going forward by an acceleration of rents in selected markets, particularly in the infill markets across the country.

The report highlighted that a growing number of institutional groups have adopted an infill acquisition strategy to best capture the forecast uplift in rents.

Occupiers are actively seeking warehouse space in these locations to fulfil their last-mile logistics functions, and investors are looking to take advantage of this via value-add opportunities, accentuated by the lack of future supply, which will drive land prices higher.

Luke Crawford, Colliers Director of Industrial Research says “rental growth” started to “kick in” during the latter half of 2021 with “prime rents increasing by almost 10 per cent.” This is the “largest annual growth” since Colliers’ “series began in early 2000.”

“With macro drivers for tenancy demand expected to remain strong in 2022 and coupled with tight vacancy rates across most markets, rents are expected to remain robust,” Luke says.

“We started to see a shift to infill markets in 2021 as groups looked to capitalise on land-constrained markets in close proximity to densely populated areas where occupiers are actively seeking space to improve supply chain efficiencies,” Luke adds.

He says “almost $5.5 billion” was sold “within infill markets” across Australia in 2021. This represents “34 per cent of assets by volume to trade” and “compares to 14 per cent of total investment volumes in 2020.”

The Colliers report also highlighted that there are “potential headwinds that could emerge in 2022” and could “impact sentiment within the sector”, and this includes “a further rise in inflation which could trigger interest rate rises sooner.” There could also be “flow-on impacts to pricing given increased funding costs.”

Regardless, Gavin believes it is likely that any increase to interest rates would be “gradual” because “real interest rates (adjusted for inflation)” have continued to “fall” and are “currently below zero.”

“This environment will remain supportive of further yield compression within the sector and has further increased the appeal of well-leased and located industrial and logistics assets, which provide fixed rental reviews,” Gavin says.

For more information on Colliers, click here.

 

 

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