The 2022 outlook for Australia’s industrial property market looks stronger than ever, with an estimated $50 billion worth of capital seeking investments, according to Colliers.
Colliers Managing Director for Industrial Gavin Bishop said the weight of capital looking for industrial assets far outweighed the availability of properties for sale.
The outlook follows a record $16 billion in Australian industrial property transactions in 2021, up 191% from 2020 when volumes totalled $5.5 billion.
Last year also eclipsed the previous record of $7 billion achieved in 2016.
E-commerce, infrastructure investment and automation will continue to drive investor demand for the sector, in addition to population growth resulting from the relaxation of international border rules.
“Private investors, corporates and selected institutions looking to recycle capital are expected to take advantage of this factor in 2022, and large portfolios will continue to be brought to the market,” Bishop said.
“It is likely that new pricing benchmarks will be set in 2022, and we expect yields have a little further to run despite the 110 basis points of compression recorded in 2021.
“By mid-2022, average yields in Sydney and Melbourne are forecast to be under 3.50% for prime core assets.”
An acceleration of rents in selected markets is expected going forward, particularly in the infill markets across the country.
“Rental growth really started to kick in during the second half of 2021 with prime rents increasing by almost 10 per cent, which is the largest level of annual growth since our series began in early 2000,” Luke Crawford, Colliers Director of Industrial Research said.
“With macro drivers for tenancy demand expected to remain strong in 2022 and coupled with tight vacancy rates across most markets, rents are expected to remain robust.”
Colliers said there has been a growing number of institutional groups that have adopted an infill acquisition strategy to best capture the forecast uplift in rents.
The company said occupiers were actively seeking warehouse space in those locations to fulfill their last-mile logistics functions, and investors were looking to take advantage via value-add opportunities, accentuated by the lack of future supply.
“We started to see a shift to infill markets in 2021 as groups looked to capitalise on land constrained markets in close proximity to densely populated areas where occupiers are actively seeking space to improve supply chain efficiencies,” Crawford said.
“In 2021, almost $5.5 billion was sold within infill markets across the country, representing 34 per cent of assets by volume to trade and compares to 14 per cent of total investment volumes in 2020.”
Potential headwinds that could emerge for the sector in 2022 include a further rise in inflation which could trigger interest rate rises sooner than previously expected.
Interest rate rises could have flow-on impacts to pricing in light of increased funding costs.
However, Bishop said it was likely that any movement in interest rates would be gradual, as real interest rates (adjusted for inflation) have continued to fall and were currently below zero.
“This environment will remain supportive of further yield compression within the sector and has further increased the appeal of well leased and located industrial and logistics assets, which provide fixed rental reviews,” Bishop said.