Investment funds are turning to regional industrial properties for higher capitalisation rates, strong tenant covenants, low vacancy rates and land-rich assets, according to Trilogy Funds.
Trilogy Funds Co-Founder and Managing Director Philip Ryan said regional industrial properties may be favoured over inner-city assets, where tighter yields were more likely to soften in response to rising interest rates.
“The big issue is people overpaying for assets and we are seeing capitalisation rates softening, particularly in capital cities,” Ryan said.
“As a result, we have concentrated on regional areas, which are delivering significantly better returns for investors.”
Ryan said their Trilogy Industrial Property Trust had exposure to both capital cities and regional cities, but they had been wary of paying too much for assets.
This year, the trust added several new assets in regional southeast Queensland and New South Wales to its portfolio.
In September, the trust expanded into regional NSW with the purchase of a multi-warehouse facility on a 1.48-hectare site in Tomago, 20 kilometres northwest of Newcastle’s CBD, for $16.14 million.
They purchased a warehouse and office facility on a 2.61-hectare site on the Sunshine Coast for $20.6 million in June.
The trust also acquired a 4.91-hectare industrial site in Torrington, Toowoomba for $10.75 million in April.
Ryan said industrial property continued to be an increasingly attractive proposition, boosted further by its resilience during COVID-19 and strong supply-demand metrics.
“The industrial property market largely strengthened during COVID-19, as increased e-commerce penetration created additional demand for warehouse space,” Ryan said.
“Tenants were not asking for rent relief as was the case with retail property and industrial property doesn’t have the same degree of incentives being paid like commercial office property. We’ve also seen rent increases in line with inflation or a minimum amount.”
He said the property fund manager was proactively engaging with their industrial property tenants to identify opportunities to add value.
“At our Carrum Downs property for example, we recently completed construction of a 550-square metre extension to the existing warehouse to support the tenant, Tempur Australia, with product expansion,” Ryan said.
“This has contributed significantly to uplift in value of the property and resulted in the tenant extending their lease.
“Expansion potential was also an attractive factor for the recently acquired industrial asset at Corbould Park, where the asset is land rich, with approximately 19% site coverage, presenting ample opportunity to increase the building’s floor area in the future.
“The Australian industrial property sector continues to be one of the most attractive property asset classes, supported by underlying fundamentals of robust demand and modest supply.”
