After a number of record-breaking years for industrial property during the pandemic, 2023 is expected to see further growth in the sector according to Colliers.
Despite, seeing a 50 per cent decline in transaction volumes in 2022, the sector remains better placed than most to weather market uncertainty this year due to yields stabilising and rents continuing to increase.
Colliers’ Head of Industrial Capital Markets, Gavin Bishop said a pause from the Reserve Bank of Australia (RBA) would also boost industrial assets.
Mr Bishop said, “Interest rates are expected to moderate mid-year, resulting in an uplift in asset values, driven by yield stabilisation and continued rental growth which will see pricing match peak values recorded in Q1 2022 by the end of 2024.
“Following a slowdown in investment activity over the past six months, new pricing benchmarks in H2 2023 will attract capital which has been sitting on the sidelines, and promote strong investment activity for the second half of the year” he said.
According to Colliers, the average deal size fell to $37.7 million in 2022, down from $73.7 million in 2021, and national prime average capital values are expected to drop by around 10 per cent from the pricing peak in late 2021 ($3,415per square metre) by mid-2023, the tables will turn thereafter,
Domestic institutions often backed by offshore capital, were the most active buyers throughout 2022, accounting for 59 per cent of the assets sold by value nationally and that is expected to continue in 2023.
Colliers’ Director of Research, Luke Crawford said offshore buyers are expected to remain the most active when the pricing reset occurs mid-year, and the low vacancy and rental growth trend is met with yield stabilisation.
Mr Crawford said, “Yield stabilisation will be underpinned by the moderation of interest rates and funding costs, determining the price readjustment that many sellers have been waiting for prior to bringing assets to the market.
“Private investors sold 46 per cent of assets, while corporate sale and leasebacks were less of a feature in 2022.
“Institutional groups were only more active in bringing assets to market in the final quarter of 2022 and this is a trend we expect will play out further in 2023” he said.
Since the start of 2022, industrial and logistics yields have softened by 85 basis points, while specific markets have experienced softening closer to 110 basis points and are predicted to fall a further 50 basis points by mid-2023 before stabilising and taking the national prime yield to just over 5.25 per cent.
Prime yields in Sydney and Melbourne are expected to sit closer to 4.5 per cent and 4.75 per cent, respectively by mid-year.
Stabilising yields will boost the sector’s strong performance in 2023, which is currently underpinned by the occupier market, seeing vacancy rates average 0.6 per cent nationally in 2022, while gross take-up exceeded 4.85 million square metres – a new record.
Occupier demand has also ensured there is the potential for over 3.6 million square metres of new industrial space to be delivered in 2023, with multi-level warehousing now a reality in the Australian market.
Demand also saw prime national weighted rents increase by 21.6 per cent across 2022, which is over six times the 10-year annual average of 3.5 per cent.
Mr Bishop said investors have been motivated by the growth in rents and e-commerce, actively targeting conveniently located infill areas, which represented over half the value of industrial asset transactions for 2022.
Mr Bishop said, “The opportunity presented by imminent rental growth upside also saw the emergence of a two-tiered market last year, with sharper pricing occurring for assets with shorter lease expiry profiles.
“The average WALE in 2022 was 4.0 years, compared to 7.3 in 2021 and 9.9 in 2020, and for shorter WALE assets prospective purchasers have been willing to pay a low initial yield given the immediate upside in rents, which will ensure yields for these assets are expected to see more modest levels of softening over the next six months,” he said.
New South Wales saw the most transactions in 2022 at $3.3 billion, followed by Victoria at $2.3 billion and Queensland at $1.4 billion.
Higher-yielding regional areas benefited from market conditions, with Newcastle, Mackay, Geelong and the Sunshine Coast receiving a capital boost from investment groups that were priced out of the capital city markets.
Mr Crawford said despite reduced activity, the second-largest annual volume of Industrial transactions on record was still achieved last year.
“Against a backdrop of an uncertain global market, Australia’s industrial and logistics sector is expected to remain the standout performer in 2023, underpinned by continued asset income growth, which will drive performance over the next 12 months,” he said.
Now you can live your dream, and purchase your very own luxury holiday home, for a fraction of the cost. Explore our stunning collection today.
Brought to you by Ko
Stay up to date with Australia’s most important property news through our free email service.
Experts Corner by Anna Warwick
Owners have the option to sell a portion of their holiday home to capture liquidity, and retain the rest.
Brought to you by Ko
Now you can live your dream, and purchase your very own luxury holiday home, for a fraction of the cost. Explore our stunning collection today.
Brought to you by Ko
Get the latest real estate news delivered free to your inbox.
Stay up to date with our free emails containing the country’s most important stories with our free email newsletters.
You can unsubscribe at any time!
Recent Comments