Industrial revolution continues in WA: JLL

According to JLL, investors from the industrial and logistics industry are buying a high-volume of commercial properties in Western Australia following a record number of purchases throughout 2021.

The brokerage giant says the WA commercial property market will continue to grow and expects investors to buy more in 2022 than last year, which it described as being “unprecedented.”

“The WA economy recorded its strongest growth in eight years during 2020-2021, with economic growth up 4.3 per cent, the strongest of any state for the second year running,” Ronak Bhimjiani, JLL’s WA Strategic Research Manager says.

“Inevitably, growth has been bolstered by ongoing resurgence in the resources sector – a sector which makes up 47 per cent of overall Gross State Product,” Ronak adds. “Looking ahead, companies within the resources sector are investing heavily into exploration activities to cope with unprecedented global demand for WA commodities.

“This is evident in the latest exploration data which shows that exploration capital expenditure is recently returned to 2012 levels – a time when WA’s economy grew by 8.3 per cent, the state’s population grew by 3.1 per cent and Perth industrial and logistics gross take-up totalled 297,000 sqms – close to 2021 levels.”

Ronak says he expects the expanding resources sector will contribute to economic growth and will drive demand for industrial and logistics space.

“The 2021 gross take-up figure of 301,000 sqms eclipsed the 2012 reading despite WA’s current population rising by only 0.7 per cent due to forced border closures,” Ronak says. “If we account for the fact that population growth will once again lift in 2022, the upside potential for industrial and logistics demand increases significantly.”

Nick Goodridge, Head of JLL’s Logistics and Industrial in WA says he expects the continued demand for and buying of commercial assets will help the sector grow, but it will also present challenges: land supply scarcity and rising construction costs, both which are already affecting feasibilities and development modelling.

“Surging occupier demand on the ground saw a record quarter of take-up across the Perth market 4Q21 with some 80,000 sqms of gross take-up recorded, an amount almost double the 2-year quarterly average,” Nick says.

“As vacancy rates decline, and development volumes and future supply remain pre-lease driven, stock availability will be problematic at a brokerage level locally,” he adds.

“Surging demand on the ground in what is a relatively small market is already starting to feed through to face and effective rental growth, to the tune of 10 per cent in Perth’s east over the past 12 months.

“E-commerce and related logistics were certainly the dominant driving force behind unprecedented demand for industrial and logistics space, with the sector representing 46 per cent of annual gross take-up. However, the balance of take-up was more evenly spread between the manufacturing, wholesale trade, construction, and professional services sectors.”

JLL says e-commerce will also continue to grow and this will lead to further demands for industrial and logistics space in Perth.

It notes the current e-commerce growth rate of 14.4 per cent is expected to expand to 20.0 per cent by 2025. This will result in an additional 640,000 sqms of industrial and logistics space between 2022 and 2025.

When other sectors’ contributions towards demand are considered, that figure could reach upwards of 1,000,000 sqms of industrial and logistics floorspace demand.

“When we pair the live data and our forecasts, it comes as no surprise that there is upward pressure on land values across the board,” Nick says. “The Perth market has traditionally had a finite supply of core land holdings, with this trend always being a safety-net for developers and investors, particularly around tenant retention strategies.”

Over the past year, $1.5 billion was placed across 23 transactions. It was invested into WA’s industrial capital markets sector. JLL says institutional capital has changed the face of the market structurally.

“We don’t expect the appetite for WA assets to subside in the medium term, as capital allocations to industrial and logistics sector continue to grow amongst institutional buyers,” Nick says. “WA landlords will be a clear beneficiary of the limited opportunities on the eastern seaboard.”

JLL says it has identified local and global investors with $53 billion looking for logistics assets within Australia.

It also notes while demand for these assets has grown, there still have not been enough opportunities for investors to purchase them. This has put significant pressure on both prime and secondary assets pricing.

JLL says it sold its Perfect Pair Portfolio in South Guildford last year. This sale impacted the market from a core capital perspective, achieving a record yield in WA of 4.25 per cent. Multiple bidders participated in the on-market campaign.

“Core capital mandates have traditionally dominated the buyer landscape in WA, however, the depth across buyer pools has increased with core plus, value-add and last mile infill logistics strategies being targeted across Perth’s industrial markets,” Nick says.

“This means that owners of the WA industrial property now have a genuine liquidity advantage over previous years, as various buckets of capital target a wider range of industrial assets.”

For more information on JLL, click here.

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