Prime Industrial Property Still in Demand



The industrial property market is considered a frontrunner in commercial property investment due to the strong income that can be achieved from long term leases. This is particularly the case for well-located industrial properties close to major transport links that will attract reliable and long term tenants. While major institutions have traditionally been the primary investors in industrial property, according to Colliers International, the rise of Self-Managed Super Funds (SMSFs) has seen an increase in private investor activity in the industrial sector . With this in mind, it is timely to take a look at the current status of the industrial property market in Perth and discuss where it may be headed into the future for those who already have an interest or are considering investing in industrial property.

The industrial property market is experiencing a definite slow down following the highs of the resources boom in Western Australian in the mid 2000’s. As mining companies move from expansion into production the huge growth that our state economy has experienced is sliding down a gear. This has had a flow on effect on demand for industrial space from the mining and resources sector as well as the manufacturing industry which is also contracting.

Despite the change in momentum for mining in WA, the state’s economy remains the strongest in the nation and the population continues to rise. The economy is shifting some of its focus from resources to major project construction such as Elizabeth Quay and Perth City Link, as well as residential activity in order to address the continued demand for new housing. All of this means that while there is a softening in demand for industrial property in some sectors, demand is likely to remain strong for industrial space suitable for the building and construction sectors as well as logistics and transport.

Looking at the situation in more detail, we can see that while vacancy rates have increased 8% in the June 2014 quarter compared with the previous quarter, the majority of vacancies are located in secondary spaces. This is due to the contraction of the manufacturing industry with a number of companies either closing down or amalgamating, as well as a move to upgrade into prime facilities from a number of tenants. The upgrading into better quality, larger facilities has left a backfill of vacancies in secondary grade facilities. It is also important to keep in mind that while overall rental yields in the industrial sector have somewhat decreased, the demand for primary grade facilities will likely see those yields hold firm.

According to Savills latest research spotlight on the Perth industrial sector , there is a shortage of larger size lots in the core precinct (Belmont, Canning Vale, Kewdale, Osborne Park, Welshpool, Jandakot Airport and Perth Airport). They go on to say that leasing and sales enquiries for prime quality properties are expected to remain strong with companies seeking prime facilities that include warehouses, excess laydown areas and/or gantry cranes installed. This expectation is reinforced by Knight Frank and LJ Hooker Commercial who both expect demand for prime space to outstrip supply in the coming year. So in short, while secondary vacancy rates may continue to rise in the short term, primary spaces are still in demand and this trend is likely to continue.

Considering that Perth Airport Pty Ltd has just released a proposed master plan for the future development of the airport precinct, this could be an important opportunity for industrial property investment. If demand in the core for primary space is likely to remain strong, the new opportunities that will open up due to the proposed airport expansion will be significant. The airport 2014 master plan predicts that by 2019 there will be 7,860 full time non-aviation employees working in the precinct and by 2034 this is expected to hit 20,020 with a $3.01b contribution to GRP. The area is set to provide approximately 300 hectares of additional commercial land that will have access to the regional road and rail freight networks. The master plan shows that the Airport North Precinct in particular will predominantly be developed into a mix of industrial, warehouse, showroom, storage and logistics land uses. Given the location and the upgrade to transport networks included for this proposed land it is likely to make a significant contribution to meeting the increasing demand for primary industrial property in the Perth market. More information on the plans can be found at: http://www.perthairport.com.au/master-plan.aspx

In closing, it is important to know the true value of a property investment prior to entering into such a major transaction. QWest Paterson are well equipped to provide expert advice on the value of all commercial property including industrial sites. Give us a call or fill in an online enquiry form to find out how we can assist you.

Also, check out our blog on the rise of Self-Managed Super Funds to find out more about how this type of investment may interest you. http://www.qwestvaluations.com.au/blog-details.php?id=6.