The industrial property sector was brought to the forefront in 2020 by outperforming all other mainstream real estate asset classes, according to research from Colliers.
Against a backdrop of changing economic conditions, Australian industrial and logistics assets remained well sought after, with $5.49 billion trading in 2020 – up 11.5 per cent from 2019.
The strong level of investment recorded for the year has come off the back of robust fundamentals within the sector including e-commerce growth, food logistics and infrastructure investment.
Despite the significant depth of capital and an increase in investment volumes in 2020, the market was constrained by fewer assets being brought to market with a 26.9 per cent fall in the number of assets sold – the lowest since 2012.
Domestic institutions were the largest buyer group across all states, accounting for 78 per cent of investment volumes for 2020.
Offshore investor volumes fell from 28.9 per cent in 2019 to 10.0 per cent in 2020.
With many industrial businesses reassessing capital needs to support their long-term growth, leaseback transactions were an integral
factor within the investment market in 2020.
“Sale and leaseback transactions represented almost 50.0 per cent of investment volumes in 2020 with just over $2.6 billion trading via this
arrangement. By comparison, approximately $1.4 billion in sale and leaseback transactions were recorded in 2019, representing around 30.0 per cent of investment volumes for the year,” Colliers explained.
ALDI, DHL, Sigma Pharmaceutical, Telstra, Owens-Illinois Australia and Border Express were some of the varied companies involved in the sale and leaseback assets to trade in 2020 – 31 per cent came from the retail industry, 28.6 per cent from manufacturing, 11.4 per cent from transport and logistics and 8.6 per cent from pharmaceutical.
This year is predicted to bring growth and opportunity for the industrial and logistics market, buoyed by strong fundamentals within the sector which will continue unabated over 2021.
“We estimate there to be $26 billion in capital looking to be placed in the market and broadly spread between offshore and domestic institutions as well as private investors,” Colliers explained.
“Given that just $5.49 billion transacted in 2020, it highlights the significant mismatch between supply and demand.
“This depth of capital will continue to drive further yield compression in the sector in 2021, albeit concentrated in prime assets as investors chase security.”
While buyer demand for industrial and logistics property expected to accelerate in 2021, with the availability of assets as institutional groups are likely to bring fewer assets to market in 2021
‘The volume of assets brought to market in 2021 is expected to originate from corporates via sale and leaseback as they continue to take
advantage of the continued strength of the market,”
Significant interest from larger institutions for a select number of portfolios is expected to come to market in 2021.
“With groups under pressure to place capital to meet investment mandates, we expect that partnering with other managers will be a growing trend going forward,” Colliers explained.
“We saw a number of instances where this occurred in 2020 and included GIC increasing their partnership with ESR from 45 per cent to 80 per cent, Allianz partnering with Charter Hall and GIC with Dexus. For groups to achieve scale, this trend is expected to gather momentum in 2021.”