According to a Colliers’ report, investors are eyeing Perth’s industrial and logistics market as yield compression is at its largest level since 2007 while properties are still reasonably priced.
Companies are responsible for the growing capital, which is causing rapid changes in the sector.
Private investors are looking to sell as the Perth market grows while companies are tipped to dominate it this year.
“The pending reopening of the Western Australian border is expected to drive investment mandates of major Australian institutional real estate investors to invest within the Perth and wider Western Australian industrial and logistics market,” Gavin Bishop, Colliers Managing Director for Industrial says.
“The Western Australian economy has not only outperformed nationally, but it has recently been one of the strongest in the Asia Pacific region, growing by 4.3 per cent in 2020-21,” he adds.
“We expect to see an increasing weight of capital chasing Western Australian industrial assets, taking advantage of strong macroeconomic drivers, rising occupier demand and accelerated rental growth.”
Charter Hall, Centuria and Dexus are some of the major domestic companies to obtain industrial and logistics assets in Perth last year with Dexus acquiring Jandakot Airport for $1.3 billion.
Perth recorded almost 60 basis points of yield compression in 2021. This was the largest level since 2007. The eastern states’ prime industrial yields stand at 216 basis points, almost triple the 10-year average.
Prime yields currently average 5.93 per cent, while core assets would currently trade within the 4.50 per cent to 5.25 per cent range. East coast investors may be tempted by this relative value to look towards Western Australia to capitalise on superior returns.
“In Perth, we are seeing available stock diminish rapidly in the first quarter of 2022, which is creating a degree of urgency amongst tenants looking to map out expansion plans over the next 12 months,” Hayden Dick, Colliers Senior Executive for Industrial says.
“Consequently, enquiry for new design and construct premises has rebounded quite strongly, however escalating construction costs and project delays are creating plenty of challenges for developers, which is likely to curtail new supply over the next 12 months,” he adds.
“In our view, this will put upward pressure on rents across 2022 and into 2023, which is driving the current interest from investors on both a local and national level.”
Investors can gain superior returns due to low-interest rates and strong rental prospects, which continue to underpin standing industrial investments. They can also achieve this by targeting secondary stock because Perth’s stock base is considered secondary grade.
There’s an opportunity to execute value add and build-to-core strategies to drive rental and capital value uplift to enhance returns due to the yield discount for this asset class remaining wide at 128 basis points.
Following a slow 2020, occupier activity has rebounded strongly and is expected to continue throughout this year.
For more information on Colliers’ findings, click here.
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