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Metro OfficeINDUSTRIAL

Buy it or build it, building scale in industrial 5

Our perspective – Industrial 10

Industrial market overview

Sydney 12

Melbourne 17

Brisbane 22

Perth 27

Adelaide 31

Auckland 34

Wellington 36

Christchurch 36

Our experience – Industrial 38

Contents

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3Industrial | Research & Forecast Report | First Half 2015

68 Anzac Road, Chullora NSW (part of the Scheinberg Portfolio)Sold on behalf of The Scheinberg Group

4 A Colliers International publication


Buy it or build it, building scale in industrial How do you build scale in industrial? You either buy it or you build it. Both of these factors are leading to high levels of investment and supply of industrial property. In 2014, we saw the highest level of industrial investment ever recorded, exceeding the previous high of 2007. In 2015, we predict that supply levels will continue to increase. This high investment and high supply environment is leading to positive conditions for tenants with incentives starting to increase in some markets. At the same time, yield compression is occurring, although we are still some way off the levels they reached at the end of 2007. By Nerida Conisbee National Director | Research [email protected] Buy it Investment volumes reached the highest level recorded in 2014, surpassing $6 billion. Australian institutions were the dominant purchasers with Charter Hall, Property Link and Mirvac being the most active. Offshore groups continue to look favourably to Australian Industrial property however the majority of the offshore volume in 2014 was due to the takeover of Australand by Frasers Centrepoint.

AUSTRALIAN INDUSTRIAL INVESTMENT VOLUME BY DOMESTIC/OFFSHORE, 2007-2015 (YTD)

$0

$1

$2

$3

$4

$5

$6

$7

2007 2008 2009 2010 2011 2012 2013 2014 2015

$AUD

Bill

ions

Domestic O�shore Unknown

Source: Colliers Edge, RCA

The most active vendors were Australian institutions however there was a spike in private owners divesting industrial stock. Traditionally private investors tend to act counter-cyclically and if this is the case in this cycle, their activity at present would suggest that we are close to peak. Private investors accounted for around a third of all vendor activity and showed the highest level of divestment of industrial property we have ever recorded.


AUSTRALIAN INDUSTRIAL SALES BY PRIVATES, 2011-2015 (YTD)

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2011 2012 2013 2014 2015

$AUD

Bill

ions

Source: Colliers Edge, RCA

Portfolio sales were a key feature of 2014 as vendors looked to capitalise on strong investment demand, although total volumes were below particularly high levels recorded in 2011 and 2012. Given the average low price per property for industrial, particularly compared to office and retail, portfolio sales are popular with investors to allow them to build scale more quickly.

In total, $1.2 billion of portfolio sales occurred in 2014. This is around 15 percent of total investment volume. PropertyLink were the most active purchaser of portfolios, acquiring three of the eight that went to market.

2015 looks like there will continue to be a number of major industrial portfolios coming to market, with owners looking to capitalise on strong investment demand. GIC from Singapore recently announced the sale of an industrial portfolio, reported to be valued at close to $900 million. Similarly, Equity Commonwealth are currently marketing a $300 million portfolio of office and industrial properties.

MAJOR INDUSTRIAL PORTFOLIO SALES 2014

VENDOR PURCHASERS PORTFOLIO VALUE (M)

The Scheinberg GroupPayce Consolidated, Charter Hall, Pipeclay Lawson

$240.0

Altis Property Partners Mirvac Group $224.1

Pitt Street Real Estate Partners KWAP Pension Fund $150.0

Valad Property Group PropertyLink $137.9

Abacus Property Group PropertyLink $106.8

Primewest Management Australian Industrial REIT $81.0

ACFS Altis Property Partners $75.0

DEXUS Property Group Propertylink Holdings $62.5

Source: Colliers Edge

300 Manchester Road, Auburn NSW (part of the Scheinberg Portfolio) Sold on behalf of The Scheinberg Group



Although supply levels are high, Brisbane is expected to have record levels of completions in 2015, accounting for around 40 percent of the total. Last year Melbourne and Sydney accounted for the highest levels of supply, although this is expected to moderate significantly this year.

AUSTRALIAN INDUSTRIAL SUPPLY, 2010-2015 (FORECAST)

0

500

1,000

1,500

2,000

2010 2011 2012 2013 2014 2015 (f)

000s

m²


Who are the tenants?Tenant demand in industrial is difficult to measure. Although there are many indicators of the demand, such as port container movements, state economic growth and increases in transport and logistics employment, most of them show a poor correlation with rental growth.

The high level of investor interest in industrial property has led to higher levels of other forms of activity including portfolio sales, mergers and acquisitions and offshore funding of local groups.

Although they do not occur as frequently as portfolio sales, acquisition of a company is a rapid way to gain scale in industrial. In 2014, the acquisition of Australand by Frasers Centrepoint resulted in ownership of more than $1 billion of industrial property.

If the Australand takeover is excluded, purchases of industrial property by offshore groups remains relatively subdued, particularly compared to previous years. Part of this is because of more competition from local groups, but also because of growth in offshore groups partnering up with local groups. It is difficult to measure exact volumes however one major example was M&G Real Estate providing funding to PropertyLink to acquire the VALAD portfolio.

Build it The drive to build scale, as well as the strong investment market, is also leading to higher levels of supply in the market. Approximately 1.8 million sqm is in the pipeline for development in 2015, which is well below the amount recorded in 2008 but the highest level since 2009.

136 Zillmere Road, Boondall QldSold on behalf of Pick Corporation Pty Ltd & W&JB Investments Pty Ltd


Using tenant enquiry data is starting to give us some detail as to where higher levels of demand are occurring. There is typically a 12 month lag between when high levels of tenant enquiry occur and when demand levels increase. As such, Sydney is likely to see the strongest demand for industrial space in 2015. Perth is also expected to see a pickup in demand levels and suggests that the high levels of supply in that market may not be unwarranted.

AUSTRALIAN INDUSTRIAL TENANT ENQUIRY LEVELS, 2013 AND 2014

-

100

200

300

400

500

600

700

800

Sydney Brisbane Adelaide Melbourne Perth

Tena

nt E

nqui

ries

(num

ber)

2013 2014


Tenant demand for industrial space is dominated by transport & logistics and retail & wholesale trade with these sectors accounting for 64 percent of all leases monitored nationally in

2014 by Colliers International. Although manufacturing is declining in importance long term, it still accounted for nine percent of all deals signed in 2014.

AUSTRALIAN INDUSTRIAL LEASES SIGNED BY INDUSTRY CATEGORY, 2014 (% OF TOTAL DEALS MONITORED)

Transport and Logistics

33%

Retail & Wholesale

Trade31%

Manufacturing 9%

Construction and Trade Services

5%

Other22%


What is happening to incentives?So much supply is a positive for tenants. More options arise for occupancy and given the highly sensitive nature of industrial rents to changes in supply levels, incentive levels also start to rise. Obvious incentives such as rent free periods are rising across

Gateway Estate, 7-15 Gundah Road, Mount Kuring-Gai NSW Sold on behalf of Industrial Parks of Australia



many markets with Melbourne and Perth showing the strongest increases over the past 12 months. This coincides with the high levels of supply in Melbourne.

AUSTRALIAN INDUSTRIAL INCENTIVES, 2013 AND 2015 (FORECAST)

0%

2%

4%

6%

8%

10%

12%

14%

16%

Sydney Melbourne Brisbane Adelaide Perth

2013 2015 Source: Colliers Edge

Although difficult to ascertain, we also consider hidden incentives are also on the rise. One example that owners may use to secure tenants is to pay out the lease tails of existing tenancies.

Over the next 12 months we consider that Brisbane will see incentive levels increase the most as the market enters a high supply environment. Tenant enquiry also dropped in Brisbane in 2014 and this will also impact upon incentives.

Sydney is likely to see the strongest decline in incentives. Already these have begun to decline however this will continue to be

sustained by moderate supply levels and an increase in the amount of tenant enquiry. We consider Sydney to be the strongest industrial market in 2015.

What is happening to yields?Declining rents and firming yields have been a feature of office markets for some time now and we are now starting to see a similar dynamic in industrial markets. Yields have firmed significantly over the past two years however the market has varied significantly geographically. Sydney, Melbourne, Brisbane and Perth yields have shown compression while yields in Adelaide continue to increase. We forecast that in 2015, Sydney yields are likely to compress, while Brisbane will follow a similar suit, with investment demand continuing to rise as investors look past the core industrial markets of Melbourne and Sydney. Melbourne and Adelaide are likely to remain stable.

AUSTRALIAN PRIME INDUSTRIAL YIELDS, MARCH 2000-MARCH 2015

6%

6.5%

7%

7.5%

8%

8.5%

9%

9.5%

10%

Mar

-00

Sep-

00

Mar

-01

Sep-

01

Mar

-02

Sep-

02

Mar

-03

Sep-

03

Mar

-04

Sep-

04

Mar

-05

Sep-

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Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

15 year average 8.3%


8 Brabham Drive, Huntingwood NSW (part of the Altis Portfolio)Sold on behalf of Altis Property Partners Pty Ltd


SYDNEY IS EXPECTED TO HAVE THE HIGHEST LEVEL OF STOCK TO ENTER THE MARKET IN 2015

YIELD COMPRESSION REFLECTS INVESTMENT DEMAND STRONGEST IN SYDNEY AND MELBOURNE

INCENTIVE LEVELS ON THE RISE

Australian institutions dominated investment volumes

Our perspective INDUSTRIAL AUSTRALIA AND NEW ZEALAND


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FIRST HALF 2015

TOP INVEST TRENDS IN 2014

Domestic investors accounted for 70% of purchases, up from 40% in 2011

Private investor vendor activity rose to the highest level recorded

Two largest sales were to developers for residential conversions

SINGAPORE MOST DOMINANT OFFSHORE INVESTOR IN 2014

CHINA

SINGAPOREUK

35,000m²141,000m²

246,000m²

387,000m² 544,000m²Sydney BrisbaneMelbourne

PerthAdelaide

2015 MARKET PREDICTIONS

High levels of tenant enquiry in Sydney to lead to strong tenant

demand

Prime industrial yields expected to firm by 0.5% but stay above

the 15 year average

Secondary yields will firm as investor demand continues to increase across

all quality types

Transport & Logistics and Retail & Wholesale Trade to continue to drive

tenant demand

Higher volume of portfolio sales, the highest yet to be recorded

Mar-13 Mar-13 Mar-13 Mar-13 Mar-13Mar-15 Mar-15 Mar-15 Mar-15 Mar-15SYDNEY MELBOURNE BRISBANE ADELAIDE PERTH

10.1% 14% 7.2% 13.1% 2.5%10.9% 15% 9.2% 12.5% 5%

Mar-13 Mar-15

8.21% 7.45%SYDNEY

7.35%7.73%MELBOURNE

7.80%8.38%BRISBANE 8.37%

8.23%ADELAIDE

8%8.13%PERTH

October 2014 to March 2015 was a period of exceptional sales conditions, continuing the trend emerging earlier in 2014. $1.3 billion of investment and vacant possession sales were recorded in Sydney Metro over the period, compared to $884 million for the same period last year. This equates to an increase in investment of approximately $416 million or +47 percent year on year.

Current conditions are akin to pre-GFC however contrary to that period, today’s sales market is characterised by lesser supply, a greater range of buyers including offshore parties and a significant positive spread between interest rates and yields. Acquisitions by Malaysian pension fund KWAP/ Logos, for example, set new benchmarks in Sydney’s South West and Central West with sub-6.8 percent yields. Even sharper yields are expected to emerge over the next 12 months when super prime assets such as 3 Roberts Road, Eastern Creek, a 55,000sqm cold storage facility with a 19.5 year WALE to Coles, transact. This reflects the level of demand and weight of money from both on and offshore investors.

Portfolios are an important feature of Sydney’s investment sales market, offering access to immediate size and scale. The McPhee Distribution Services portfolio sold for $70 million in February to Cache Logistics Trust, a Singaporean REIT, with an overall blended 7.25 percent yield. One Sydney asset at 127 Orchard Road, Chester Hill was included in the three asset portfolio. In addition Colliers International has also been appointed to sell the GIC portfolio which will be the biggest industrial portfolio sale ever in Australia. This comprises of 25 assets nationally, indicating a continuation of portfolio sales activity.

Weight of capital and strength of demand has driven down yields across all submarkets for prime and secondary grade assets. Vanilla assets offering size, location, strong covenant and long WALE are most sought after. The level of competition for prime assets is forcing investors up the risk curve where they can access higher yielding stock but must take on greater leasing or refurbishment risk. Investec’s purchase of 165-169 Newton Road, Wetherill Park for $18.5 million at a relatively low yield of 7.86 percent yield in December is testament to the appetite for

secondary assets with long WALEs. Strong sales conditions are expected to persist over the next 12 months given the amount of capital seeking to be placed and the high interest versus yield spread.

Leasing conditions have improved compared to 12 months ago, although this varies across business sectors which are subject to different drivers. The lower Australian dollar, for example, aids manufacturers but adversely impacts upon importers. Logistics firms dominate market requirements with demand focused on large, modern stock. There is currently over 250,000sqm of pre-commitment enquiry in the market in Western Sydney alone.

Sydney is experiencing an unprecedented surge in transport infrastructure spending, assisted by the stabilisation of the NSW Government following the State election in March. Big ticket projects include WestConnex, NorthConnex, Badgerys Creek airport, Moorebank Intermodal and the North West Rail Link which in total equate to $29 billion of construction expenditure. This infrastructure will directly support jobs and expansion in associated businesses and drive future industrial demand.

SYDNEY MARKET Investors seize the day

First Half 2015


35 Bryant Street, PadstowLeased on behalf of Nicker Miles Holdings Pty Ltd



Sydney westYields drive ever lowerThe sales market is firing across all Sydney west submarkets. The three tier buyer profile comprises institutional grade purchasers seeking stock offering long WALE and strong covenant, private investors and owner-occupiers. Land sales have also been improving. Tenanted investment opportunities are experiencing the strongest demand, with reasonable demand for vacant possession although at a lower level than investment sales. This reflects mixed economic signals which are leading some businesses to be cautious in their investment plans.

A shortage of land and buildings for sale persists, with demand far exceeding supply. This is prompting uplift in capital values. Yield outcomes even on secondary grade assets are tightening. Lower yields are being achieved today on comparable assets which sold with longer WALE just six months ago, providing an indication of how fast the market is moving. This reflects smaller syndicators and high net worth individuals being forced up the risk curve to access higher yields and taking on leasing and refurbishment risk at the same time. These investors are also pitching on smaller (sub-$20 million) opportunities than they would previously have favoured.

SYDNEY INDUSTRIAL MARKET AVERAGE YIELDS

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Yiel

d/Ra

te/S

prea

d

Spread to Bonds Prime Grade 10 Year Govt Bond Rate


Steady as she goes for leasing The Inner west submarket is on the receiving end of tenant displacement from Sydney south and Sydney north, fuelling leasing activity. Tenants are being forced out of those markets due to high land prices and land upzoning. They may prefer to buy but given current sales prices and enticing rental offers conclude it is a better financial proposition to rent.

Elsewhere in Sydney west leasing demand remains patchy with enquiry ticking over but not ground-breaking. Leasing deals over the last six month were focused on prime properties reflecting demand. There has been a constant supply of speculative prime floorspace coming online each year, for example current speculative developments by Goodman (20,250sqm at Oatley Close, Huntingwood) and Australand (9,612sqm at Kangaroo Close, Eastern Creek and 14,245sqm at Horsley Drive, Huntingwood).

Given the superior quality of new generation buildings which deliver significant clearance and size, secondary stock can struggle to compete requiring harder rental and incentive competition. Some institutional owners thus have a fair supply of stock and large vacancy. As a result incentives of up to 10 to 15 percent are on offer for longer leases and these are creeping

6-20 Clunies Ross Street, GreystanesLeased on behalf of Australia Post

SYDNEY PRIME GRADE INDUSTRIAL MARKET

MARKET AVERAGE NET FACE RENTS ($/m² pa)

AVERAGE YIELD

AVERAGE LAND VALUES ($/m²)

H1 2015

H2 2015

H1 2015

H2 2015

H1 2015

H2 2015

Sydney west $123 7.0% $356 /

Sydney south $165 / 7.1% $1,200 /

Sydney south west $113 7.1% $275 /

Sydney north $175 / 7.8% $950

COLLIERS INTERNATIONAL RESEARCH FORECASTS



up in some areas, given that these owners are concerned with

maintaining and lengthening WALE. It remains a competitive

market for landlords.

Westconnex to push demand

With the development of WestConnex, NorthConnex and the

North West Rail Link proceeding, businesses already established

in or considering the Sydney west will be confident in making

investment and expansion decisions. Westconnex in particular

will provide a catalyst for the industrial market with a jostling for

position among tenants and landowners along the route expected.

Westconnex will drive industrial demand directly, through the

construction process itself and relocation of occupiers, and

indirectly by increasing the desirability of locating in Sydney west.

Sydney southStrong demand for all investment opportunities

Investment sales in Sydney south are strong, reflecting the

residential dynamic which permeates the market and the

presence of Port Botany and Sydney Kingsford-Smith Airport.

Yields have compressed and capital values have risen. The

strength of demand is demonstrated by the $44 million purchase

of 2 Simblist Road, Port Botany, which formed part of the ACFS

portfolio, by Altis in December. Despite this being for 19-year

ground lease and the associated investment risk, a 10.97 percent

initial yield was achieved.

Owner-occupiers remain active in Sydney south but are facing

tough competition to access stock given a lack of choice and high

sales prices. This is forcing some tenants to either move to other markets, lease space or purchase a strata title property. Recent examples include 1-3 Lord Street, Botany for $4.85 million ($3,335/sqm) and 288 Coward Street for $4.95 million ($3,313/sqm). Both sold to owner-occupiers. Owner-occupiers must now look further afield as evidenced by the sale of 5-7 Garema Circuit for $5.78 million ($1,966/sqm), with the majority of interest from South Sydney occupiers.

Presently, institutions and private investors are more inclined to hold their stock with a view to capturing value through yield compression and increasing net rents. The lack of prime grade stock coupled with appetite for industrial has seen a number of secondary assets change hands in recent months. At the end of quarter one 2015 prime yields were 6.5 to 7.5 percent with secondary yields at 7.5 to 8.5 percent.

Leasing activity focused on smaller propertiesLeasing demand for properties of less than 1,500sqm has been relatively strong, with leasing enquiry for larger tenancies more subdued. Prime grade net face rents have increased slightly over the period and secondary grade rents have also crept up. Secondary stock is benefiting from tenant displacement due to withdrawal which is reducing options and forcing tenants to relocate. This includes owner-occupiers who are forgoing attempting to buy a property and electing to lease instead. Other tenants who do not require proximity to the Port or Airport are choosing to move south and west, where stock is more readily available and rents lower.

The pre-lease market has seen renewed activity over the past 24 months with industrial deals including Toll Global, Veolia Environmental Services, Visa and Owens Freight in Banksmeadow and Lovatts Transport in Botany. A lack of high quality, suitable, existing, large space for lease and the requirement of some larger tenants to be located close to the Port and occupy a property with significant handstand space has seen demand for purpose built stock grow. South Sydney is on the cusp of a brand new pre-lease development in Botany for 7.2 hectares of land.

SYDNEY INDUSTRIAL PRIME GRADE AVERAGE NET FACE RENTS

$178

$124

$158

$113

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

North West South South west

Mar-15 Sep-14 Mar-14


127 Orchard Road, Chester Hill (part of the McPhee Portfolio)Sold on behalf of McPhee Distribution Services



The $70 million acquisition of a part refrigerated logistics property at 38-46 Bernera Road, Prestons, by the Malaysian KWAP Pension Fund/Logos exchanged in October. The initial yield of 6.69 percent set a new low in this market for a 13.7 year WALE. Land is also transacting, such as 8 Williamson Road in Ingleburn.

Competitive leasing marketThe leasing market remains fairly subdued and the balance of power remains in favour of the tenant. This is restricting the occurrence of sale and leaseback transactions. That said the South west is benefiting from tenants being driven out of Sydney south in light of ongoing residential conversion in that market.

The greatest demand and activity is concentrated in the outer west in submarkets such as Minto, Campbelltown and Smeaton Grange. Demand is primarily for large (greater than 10,000sqm) warehouses. Reflective of this, large vacancy has declined over the period, from 132,592sqm of floorspace in eight sheds in quarter three 2014 to 95,606sqm in six sheds in quarter one 2015. Major leases include Lot 6, Central Hills Drive, Narellan, where G M Kane & Sons Pty Ltd took just over 15,000sqm in November; and 4 Inglis Road, Ingleburn, with Unilever leasing 26,325sqm in December.

Significant infrastructure investmentSydney South West provides plenty of stock that is not threatened by residential conversion. This supports a healthy supply pipeline with some 202,900sqm in four schemes having been granted development application approval. These require large pre-commitments to kick-start development but are expected to hit the market within the next two years. AMP, Stockland and Goodman own this development pipeline.

Sydney south west will be the recipient of significant infrastructure spending. The revitalisation of Liverpool CBD is ongoing and the M5 road widening is nearly complete. A partnership agreement for the development and operation of the

Shrinking market a positive for landlordsThe residential market has been booming over the past 24 months with both industrial estates and smaller scale industrial properties seeing strong demand from residential developers. Sydney south is set to lose over two million square metres of employment generating land to residential development and Westconnex over the medium term. As a result of these transactions settling, leases expiring and demolition clauses kicking into a major influx of industrial tenants hitting the market and increasing in demand is beginning, prompting rising net rents and a reduction of incentives.

Over the next 12 months prime grade assets will remain highly sought after with covenant and strong WALE being key value drivers. Net face rents are expected to increase for both prime and secondary space. Prime grade yields will remain firm in 2015 as the lack of properties for sale remains low, while the appetite of institutional and overseas investors remains healthy. Secondary grade yields could tighten as investors look for value add opportunities.

Sydney south westExceptionally strong sales conditionsAs with the rest of Sydney metro, the Sydney south west industrial market is buoyant with compressing yields for prime and secondary grade assets. Given the low interest rate environment, owner-occupiers are finding it cheaper to buy rather than rent. Colliers International has recorded a jump in enquiry from owner-occupiers seeking to acquire properties. Over the next 12 months demand from owner-occupiers will drive the sales market, tapered by limited availability of stock for purchase.

The buyer profile over the quarter four 2014 to quarter one 2015 period comprised a mixture of institutions and owner-occupiers.

1029 Bourke Street & 723 Elizabeth Street, WaterlooSold on behalf of a private client


Moorebank Intermodal was reached in December and subject to board approval. This should see development commence in early 2016 and operations commence in 2018. Construction of Sydney’s second airport at Badgerys Creek is also scheduled for early 2016. This infrastructure investment will drive the Sydney south west industrial market going forward.

MAJOR INFRASTRUCTURE PROJECTS IN SYDNEY

$10

$2.7

$5.9

$2

$8.3

$0

$2

$4

$6

$8

$10

$12

Westconnex Northconnex Badgerys Creek Airport Moorebank Intermodal North West Rail Link

Inve

stm

ent (

$ bn

)


Sydney northLack of stock for saleThe investment sales market in Sydney north performed well over the period, with demand constrained only by a lack of stock on the market. Demand continues to outweigh supply and yields compressed to average 7.75 percent for prime and nine percent for secondary grade assets at the end of quarter one 2015. Despite strong sale prices, owner-occupiers are concerned with their ability to re-access the market if they sell property now to cash in on prevailing conditions which is promoting many to

sit tight. Notwithstanding this, a small increase in sale and lease back transactions in the sub-$15 million was noted from tenancies seeking to re-capitalise their business.

The greatest value industrial sale for the Sydney Metro over the period was in this market, with the St Leonards Corporate Centre at 39 Herbert Street transacting for $150 million in November. This asset formed part of the Altis portfolio sale. It was acquired by Mirvac on a 6.7 percent yield reflecting residential upside potential. Exceptionally strong market interest in this asset was recorded by Colliers International. The Gateway Estate at 7-15 Gundah Road, Mount Kuring-Gai was purchased by Propertylink for $55 million in December. Again strong market interest was registered with the sales price equating to an 8.43 percent yield.

Market dominated by small tenanciesLeasing demand in Sydney North has been steady and stronger than it was at this point last year. Enquiry for industrial space is dominated by users in the 500-1,500sqm size range, reflecting a stock profile composed of predominately small properties. The market is tightly held making it difficult to place new leasing enquiries. No new leases for over 2,000sqm were signed over the period.

There remains only one large vacancy of greater than 10,000sqm in Sydney north and even this is not contiguous, being split over two levels. Options for prospective tenants are limited due to a mismatch between supply and demand and a lack of stock availability. Given pressure for higher value residential, retail and bulky goods uses in industrial areas the delivery of new supply capable of alleviating supply issues is highly constrained. Demand which cannot be satisfied locally is being displaced elsewhere, largely to the Inner West.

Future outlookCapital values should improve over the next year as yields firm, particularly in the sub-$15 million market, as a result of high demand and strong buyer competition. The leasing market will tighten further due to steady demand, a lack of new development and the erosion of stock to higher value uses which will push demand to Sydney west.

The $3 billion NorthConnex road tunnelling project was confirmed by State Government in January. Completion is expected in 2019. This will facilitate improved access to the Sydney north market upon completion. Mount Kuring-Gai will be the major beneficiary of this new infrastructure and it will also benefit from the ever tightening market, given that has the most brownfield development options which are insulated from residential encroachment by national parklands.

How else can we help you? Speak to one of our property experts [email protected]

For further information please contact: Tom Duncan Associate Director | Research | Tel +61 2 9257 0327 [email protected]

39 Herbert Street, St Leonards (part of the Altis Portfolio)Sold on behalf of Altis Property Partners Pty Ltd



MELBOURNE MARKET

First Half 2015


The industrial market over the latter half of 2014 and early months of 2015 has been characterised by strong sales of retail industrial lots. A gradual fall in the value of the Australian dollar since September 2014 has resulted in more confidence in the manufacturing sector in Australia. This trend particularly benefits Melbourne, where manufacturing has always had a strong presence. Coupled with historically low interest rates, owner occupiers as well as developers are taking the opportunity to purchase serviced lots for development. One of the larger deals to occur this year was the $165 million investment that Dulux will be making at MAB and GPC’s Merrifield Business Park in Melbourne’s north to establish a paint factory.

Demand by institutions for industrial investment opportunities remains very strong. In 2014, a total of $1.26 billion worth of industrial property in Victoria changed hands. This is above the previous annual record of $1.1 billion, recorded in 2007. Total sales volumes in 2014 were up 38 percent on 2013 levels. The largest sale was the K-Mart Distribution Centre in Truganina in December

2014. The property was sold by Goodman Group for $94.1 million to Invesco Australia on a yield of 6.5 percent. The asset is a state of the art logistics facility built in 2011 with a long term lease until February 2026. Colliers International transacted the deal.

On average, prime grade yields have compressed to between 6.75 percent and 7.25 percent in Melbourne. However, super prime assets that have long lease terms and exceptional tenant covenants, such as the K-Mart Distribution Centre, will attract sub 6.5 percent yields. Demand for assets is such that we expect yields to compress further by the end of 2015, to average between 6.0 percent and 6.5 percent.

The leasing market continues to remain competitive, and incentives across most markets have remained steady over 2014. We expect that by year’s end, however, this scenario could change, as speculative supply in Melbourne gradually dries up. It is these speculative developments that have caused prime grade incentives to remain on the generous side. In 2014, just over 600,000sqm of industrial space was completed, although we expect this supply to be gradually taken up throughout 2015, as incetives do their job. In 2015, less than 250,000sqm of industrial space is under development, and a further 250,000sqm is proposed. This is in line with long term averages – although it is unlikely that all of the proposed developments will go ahead.

Land sales gathering momentum

56-60 Toll Drive, Altona NorthLeased on behalf of Stockland

MELBOURNE PRIME GRADE INDUSTRIAL MARKET INDICATORS

REGION AVERAGE NET FACE ($/m² pa)

AVERAGE YIELD


H1 2015

H2 2015

H1 2015

H2 2015

H1 2015

H2 2015

City fringe $160 7.1% $800

North $78 7.8% $238

South east $85 7.4% $265

West $75 7.3% $160

Outer east $83 7.4% $338


Note: Figures represent market averages as at end of March 2014. For more details see the Data Tables.Source: Colliers Edge


649-655 Springvale Road, Mulgrave Sold on behalf of NEC

City fringeResidential developers securing sitesThe city fringe continues to undergo structural change, where existing development sites are sold for residential conversion. In Abbotsford, two sites owned by the Wyllie Group at 2-6 Southampton Crescent and 32 Duke Street were sold in November 2014 to Shandong HYI, a major Chinese developer for a total of $20.7 million. The sites are currently leased to CUB, who has a major presence in Abbotsford, until 2017, but they are expected to be major residential development sites in future. Another major residential development is expected to emerge nearby at the Richmond Malt site, home to the famous Nylex clock, which Colliers International sold to developer Caydon for $38 million in December 2014.

An interesting site to keep watch on is the 35 hectare site on Footscray Road, west Melbourne that is currently occupied by the Wholesale Fruit and Vegetable Market. The market will move to its new site in Epping in August of this year, and at present it is unclear what will happen to the state-owned site. The site represents the largest sole ownership development site in the city fringe, and, location wise, is suitable for a number of different uses. Its proximity to the Port of Melbourne, however, as well as the upcoming sale of the Port’s leasehold, means that an industrial use, or even a tie-in to the Port sale, has potential.

The shrinking size of the industrial market in the city fringe means prime rents and land values climb higher as tenants and developers both compete. Average net face rents for the city fringe market remain the highest for Melbourne’s industrial market, and now range between $135 to $160 per sqm and prime and secondary yields continue to show signs of compression, averaging 7.25 percent and 9.25 percent respectively.

NorthMajor T&L users moving inTransport and logistics users continue to dominate demand in the Melbourne North market. Proximity to Melbourne Airport, as well as the Hume Highway Melbourne-Sydney freight corridor and good transport links to the Port of Melbourne makes the area particularly attractive for this market segment.

In the latter half of 2014 and early months of 2015, a number of major occupiers have announced they are investing in the precinct. In June 2014, Toll Group announced that the largest freight sorting facility in Australia will be built in Tullamarine at Melbourne Airport. The facility will be 71,000sqm and occupy a 20 hectare site. September 2014 saw the announcement that TNT will build a 38,000sqm facility on a 12.1 hectare site in the same area. Both facilities are due to be operational by the end



MELBOURNE INDUSTRIAL SALES

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WestOwner occupiers and developers snapping up landThe west industrial market continues to be the powerhouse market in Victoria, both in terms of leasing and investment demand. A number of major leasing deals concluded in the latter half of 2014, including LINPAC’s commitment to 11,854sqm at 28 Distribution Drive in Truganina, located within the latest stage of DEXUS Industrial Estate. LINPAC will occupy a $22 million packaging plant on the site, and is a major positive for the market given that they are new to Australia and will also

of 2015. In another major logistics deal for Melbourne’s north industrial market, Mainfreight has purchased an 11 hectare site at MAB’s Alliance Business Park in Epping where they plan to build a 36,000sqm of training facility, as well as two other commercial buildings.

The new Melbourne fruit and vegetable market is due to open on its 70 hectare Epping site in August 2015. A number of food-related businesses have already opted to locate close to the markets. Early in 2015, MAB sold an 8,059sqm site at Alliance Business Park, which is next door to the market, to vegetable wholesaler Rainfresh for $1.5 million. Rainfresh joins other food-related occupiers of the business park, including VB Fruit and food manufacturer Edlyn Foods. The previously mentioned Dulux deal (see Melbourne overview), at MAB and GPC’s Merrifield Business Park, is also a major coup for the north Industrial precinct.

The leasing market for existing sites in the north continues to face challenges, as multiple land options and low interest rates encourages occupiers to develop on new land estates. Secondary sites that are available for lease are now attracting offers from purchasers, who appreciate that now is the best time in a long while to secure a facility to own. Net face rents for prime grade facilities in the north range from $70 to $85, while rents for secondary grade facilities offer some of the best deals in Melbourne, ranging between $40 and $55.

K-Mart Distribution Centre, 2-12 Banfield Court, Truganina Sold on behalf of Goodman


be manufacturing onsite. In the fast growing transport and logistics sector, Silk Logistics committed to 14,000sqm of space at 69 Studley Court in Derrimut, while Fastline, a 3PL provider, committed to a 13,755sqm facility at 2-30 Saintly Drive in Truganina. More recently, Australian logistics and supply chain solutions company, BTI Logistics, has pre-leased an 8,500sqm facility at Pellicano Group’s Orbis Business Park in Ravenhall. The site is expected to be completed in late 2015. Good supply of warehouse facilities meant that average net face rents in the West market have remained steady at $75/sqm.

Uptake in retail serviced lots ready for development has also been very strong in the West. A total of seven lots at Stage 12 of Australand’s West Park Industrial Estate sold to a mixture of owner occupiers and local developers in December 2014 alone. The sites ranged in price from $130/sqm to $185/sqm. Our average land value for the West Industrial market as at March 2015 is $160/sqm – unchanged from the previous quarter.

In terms of sales, the previously mentioned sale of the K-Mart Distribution Centre in Truganina, sold for $94.1 million in December 2014, was the largest sale in the Victorian industrial market in 2014. Further sales also occurred at 105-115 Paramount Boulevard, Derrimut, which was sold in December 2014 for

$10.9 million, on an initial yield of 7.25 percent. The building is under construction and due for completion in May 2015, and will comprise a 15,800sqm office/warehouse facility. The facility is subject to a new five year lease to eStore Logistics Pty Ltd. Yields in Melbourne’s west are currently averaging 7.3 percent, and range between 7.0 percent and 7.6 percent, although super prime sites such as the K-Mart Distribution Centre will attract a premium, as long as lease terms are long and the tenant covenant is a strong one. Demand from investors for well tenanted investment stock in the West is still very strong, and we expect sales in 2015 to show yield compression in the order of 15 to 25 basis points.

MELBOURNE INDUSTRIAL LAND VALUES

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*Retail lots average 3,000sqm


2-10 Bliss Court, DerrimutSold on behalf of Snolake Pty Ltd




For further information please contact: Anneke Thompson Associate Director | Research | Tel +61 3 9940 7241 [email protected]

69 Studley Court, Derrimut Leased on behalf of 360 Capital

South & outer east Land values rise as demand from owner occupiers increasesLike other precincts around Melbourne, the south east industrial market has seen strong demand for retail land lots from owner occupiers and local developers, who are taking advantage of strong buying conditions. For this reason, we have seen an increase in average land values of retail lots from $250/sqm in December 2014 to $265/sqm in March 2015. This represents an average range of $240/sqm to $290/sqm. The sale of a 1.72 hectare site at Kingston Business Park to PFD Food Services is a recent example of an owner occupier land sale.

Large-scale lots of more than 10,000sqm are also in short supply in Melbourne’s east industrial market, resulting in developers and occupiers considering brown field sites in this tightly held market. Whilst small lot supply and sales continue with great success in locations such as The Key Industrial Park and Dandenong Logis Estate, the supply of development-ready land in excess of 10,000sqm remains extremely tight. The last remaining lot (20,000sqm) at Kingston Business Park, Knoxfield represents the only land parcel of this scale in the inner east available for sale, ready for immediate industrial development.

Further south east, the Dandenong precinct features only two estates where lots greater than 10,000sqm can be readily purchased for immediate development, namely Goodman’s Power Park and Australand’s The Key Industrial Park. This rapidly tightening land supply in a market growing in confidence has resulted in urgency for occupiers seeking larger sites, coupled with increased demand by developers searching for the next appropriately zoned site that offers scale in this proven market.

The major site sale in the East market over the past six months was the sale of 649-655 Springvale Road, Mulgrave, owned and occupied by NEC. The site sold in December 2014 for a total of $25.1 million to two separate buyers. The NEC site generated strong interest from buyers attracted to the expansive Springvale Road frontage and sought after Mulgrave location. Rinoldi Pasta, an adjoining owner/occupier, was the successful purchaser of the southern 4.86 hectare portion of the site, while local developer Salta Properties purchased the remaining 2.41 hectares of the site. Salta Properties plan to build a masterplanned Business Park on the site, something they have had great success with at nearby Nexus Business Park.

The leasing market in the south east is also expected to experience tighter supply as the year progresses, with the drying up of speculative development. In 2014, the south east and outer east markets saw over 270,000sqm of industrial development reach practical completion. Currently there is just over 140,000sqm of development under construction, and a further 150,000sqm planned/mooted for 2016. The reduced level of supply means we could experience a slight reduction in prime grade incentives towards the end of 2015 and into early 2016.

MELBOURNE INDUSTRIAL SUPPLY

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All Brisbane industrial markets are experiencing strong demand from domestic and offshore investors for institutional grade assets. This is continuing to have a tightening effect on prime, and to a lesser extent, secondary yields given their more inherent risk. Appetite has predominantly persisted for vanilla assets prominently located, with long term WALEs and strong covenants in place. However, due to the scarcity of opportunity, assets with vacant possession or short term lease profiles have also been in reasonable demand, although investors are taking more caution.

During the first half of 2015, institutions dominated the investment landscape, accounting for $374.2 million of the total $488.4 million in transaction volume. The ATC recorded the greatest sales volume by value with around $209 million transacting across seven industrial properties. Portfolio sales have been a buoyant sector as vendors have sought to capitalise on strong investment demand, with the ACFS, Altis, Super Retail Group, Inghams, McPhee, Valad and Scheinberg industrial portfolios changing hands over the period. Over the course of the year, portfolio sales are expected to remain an important element driving investment activity in Brisbane.

Singaporean institutional REITs were active over the period. Cache Logistics Trust made its first Australian acquisition in February 2015 outlaying nearly $75 million on the McPhee portfolio. Portfolios allow investors to rapidly build scale and are becoming an increasing feature among offshore groups gaining a foothold into Australia’s property market. Mergers and acquisitions were also a feature with Frasers Centrepoint acquiring the Australand’s portfolio worth over $1 billion in industrial property.

Prime industrial grade assets continue to represent stable and strong investment opportunities. Compared to Sydney and Melbourne, yields in Brisbane are softer by 50 to 100 basis points. As the intrinsic investment risk is not necessarily reflective of this yield differential, starved investors and the impact of weight of capital chasing prime assets is expected to drive further yield compression in Brisbane. Yields are expected to follow suit to Sydney and Melbourne and tighten by up to 50 basis points over the next 12 months to average 7.53 per cent for prime.

The push for scale combined with the strong investment market is leading to increases in the supply pipeline. Supply has gradually been increasing with institutional REITs Goodman, Dexus and Australand driving supply in Brisbane as nearly 100,000sqm of supply is under construction and due to enter the market in 2015 across several large industrial estates to cater for corporates.

Coinciding with this is the key theme of consolidation. Business operators have been undertaking below-line cost measures to improve their overall operational efficiencies focusing on smoothing out logistics, supply chains, inventory management and the cost of labour. Administration functions are also being centralised and these factors have been driving the appeal of large format, high quality industrial facilities. As Brisbane’s major industrial areas are well-serviced by the transport and arterial network, businesses are now looking beyond this factor and considering blue collar employment pools as part of their location decisions to draw on a larger local workforce.

BRISBANE MARKETInvestor appetite continues unabated

First Half 2015


9 Anton Road, Hemmant Sold on behalf of BWP Management



Note: Figures represent market averages as at end of Q1 2015. For more details see the Data Tables.Source: Colliers Edge

BRISBANE PRIME GRADE INDUSTRIAL MARKET INDICATORS


AVERAGE YIELD


H1 2015

H2 2015

H1 2015

H2 2015

H1 2015

H2 2015

Australia TradeCoast $115 7.6% $275

North $110 7.8% $238

South $103 7.9% $225

South west $103 7.9% $225

Yatala $103 7.9% $200


Throughout the second half of 2014, leasing volumes in the Brisbane industrial market plateaued and were underpinned by the execution of large space requirements by Woolworths, Target and TNT. The leasing market has softened into the first half of 2015 with approximately 123,500sqm of floorspace leased (tenancies over 2,000sqm), a halving from the preceding six months. This in part has been a reflection of the limited supply of A grade and to a lesser extent B grade product and also to the marked decline in tenancy sizes sought. Tenant enquiry was most prolific in premises of up to 2,000sqm, down from the previous six month average. Leasing activity was dominated by transport and logistics based industries representing a significant share of the total leasing volume (40.6 percent).

Although vacancy is generally low, the dampened leasing market coupled with the development supply pipeline will hamper rental growth in the short term, with isolated increases in incentives continuing. Despite the softened conditions, tenant demand is expected to improve in the medium term as confidence continues to build following a stabilised interest rate environment and recalibration of the Australian dollar. Positive growth in retail spending together with Queensland’s infrastructure projects, such as the Brisbane Airport upgrade and Port of Brisbane expansion will also support the industrial market fundamentals.

Australia TradeCoast Logistics dominate leasing activityLeasing activity in the ATC (includes the north-side suburbs of Eagle Farm and Pinkenba and south-side suburbs of Morningside, Colmslie, Queensport, Murrarie, Hemmant, Lytton and Fisherman Islands) has been particularly strong in the last quarter of 2014 led by transport and logistics operators. Direct access to the airport, The Port of Brisbane, Gateway Motorway and CBD represent key elements drawing businesses to the precinct. AP Eagers were one of three businesses agreeing to a lease as part

7-9 French Avenue, BrendaleSold on behalf of Paper Property Pty Ltd

of a sale and leaseback transaction. As owner-occupiers are cashing in on the prevailing conditions, sale and leaseback activity remains an ongoing theme.

Transport and logistics operators, Silk Logistics and Yusen, also pre-committed to warehouse space of 30,035sqm and 8,950sqm respectively in Goodman’s Lytton Motorway Estate. The total 39,000sqm of speculative space in the estate was fully committed prior to development completion, demonstrating demand focussed on quality warehouse facilities that have access to key transport infrastructure. The transport and logistics sector, in particular, will continue to generate demand for industrial space in the ATC, as the precinct is well-positioned to cater for retrieval and handling activities for import and export air and ocean freight.

COMPOSITION OF LEASING ACTIVITY

40.6%

28.4%

2.7%

4.7%

23.6% Transport/Logistics

Machinery/Auto

Manufacturing

Services/Other

Wholesale/Retail



Bay, Burpengary, Kippa Ring and Clontarf) is transitioning from manufacturing and service oriented industries and becoming host to large format warehouse and distribution centres. Aldi is the latest retail giant to locate in the area and is developing a 49,000sqm distribution facility on a 17.1 hectare site in Brendale, due for completion in the second half of 2015. Following its practical completion, the north’s development pipeline will be depleted and this to some extent will thwart leasing activity. Owner-occupiers will also be under pressure to lease and refurbish secondary stock to remain competitive in the market.

Portfolio sale reflects largest transactionProperties in the north continue to remain tightly held with three sales recorded over the last six months, including one part of a portfolio sale. Institutional REITs and investment managers are driving the investment market. The largest transaction was marked by the Malaysian institutional investor, KWAP Pension Fund, acquiring the Super Retail Group portfolio. The super prime asset in Brendale, a 50,300sqm showroom with a WALE of 14.92 years set, a new benchmark achieving a yield of 6.77 per cent. This reflects the weight of capital from offshore investors.

In contrast, a secondary asset transaction denoted 360 Capital Industrial Fund’s acquisition of Bradnam’s Windows and Doors facility in Boondall for $25 million at a yield of 8.7 percent and WALE of 8.79 years. Lower yields are continuing to be achieved in the market on comparable assets which sold with stronger lease profiles a year ago, indicative of the market’s movement. Analogous to the leasing fundamentals, acquisition opportunities will be limited by the lack of available stock in the north’s development pipeline and this will keep yields firm and appetite healthy in 2015.

Institutional investors activeInvestor appetite for ATC assets is showing no signs of abating. Yield tightening was evidenced through a number of asset sales with institutional investors primarily attracted to prime assets with strong lease covenants in place. A deal brokered by Colliers exemplifying this was 360 Capital’s $27 million acquisition of an 11,558sqm industrial facility leased to global blue chip tenant Yamaha Motors Australia with a WALE of 8.46 years at a yield of 7.58 percent. The weight of offshore capital is expected to focus on new logistics facilities and retail warehouses in this precinct. Demand for these properties will continue to be supported by tenant needs to relocate and consolidate.

As investment opportunities are relatively constrained, with institutions and private investors holding onto their stock, investors are moving up the risk curve and acquiring in more complicated assets. Altis Property Partners purchased a leasehold interest on Fisherman Island at the Port of Brisbane as part of the ACFS portfolio. Despite this being for a 40-year ground lease and the associated investment risk, a yield of 7.5 percent was achieved. Further cap rate compression in the ATC is anticipated.

NorthAppeal towards larger scale A defining market feature has been the appeal of larger format, high quality industrial facilities. The north precinct (includes the suburbs of Hendra, Northgate, Banyo, Virginia, Geebung, Zillmere, Brendale, Strathpine, Lawnton, North Lakes, Narangba, Deception

20 Peterkin Street, Acacia RidgeSold on behalf of Windfor Pty Ltd



BRISBANE INDUSTRIAL INVESTOR BY PURCHASER TYPE

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SouthStrong lease covenants and long WALEs drive investmentInvestment activity in the south (encompassing the suburbs of Acacia Ridge, Salisbury, Rocklea, Coopers Plains, Larapinta, Berrinba, Heathwood, Parkinson and Browns Plains) was dynamic in the first half of 2015. Investment opportunities in the $5 and $10 million submarket were pursued, accessible to many groups, including REITs, investment managers and private investors who represented active buyers. The south market registered nine sales with a total combined value of $104.7 million. This comprised two sales part of the Valad and McPhee portfolios at 51 Musgrave Road in Coopers Plains ($10.7 million) and 37-53 Eurora Street in Kingston ($6.8 million). The largest transaction at $22.2 million marked Centuria’s purchase of a 13,774sqm warehouse building fully leased to BlueScope Steel with a WALE of 10.19 years and yield of 7.76 percent.

Industrial investment in the area has been underwritten by the high quality infrastructure in the area and its strategic location to interstate markets. That said, although investment parameters are driven by the security of cash flow of the asset as opposed to the property specifics, if a high risk asset becomes available, with vacant possession or a short term lease expiry profile, the physical attributes become more of a consideration.

Mixed leasing demand Leasing demand has been mixed in the south with leases signed for a range of business uses and tenancy sizes. Beaumont Tiles signed the largest lease, pre-committing to a 13,164sqm warehouse on a 12 year term in Goodman’s Rochedale Motorway estate, scheduled for completion in the second half of the year. Beaumont Tiles will be the first tenant in the new estate. There were a handful of smaller leases signed among a range of other sectors for built stock. As developers compete to secure suitable tenants into speculative stock, incentives are expected to creep up with prime grade net rents remaining stable into 2015 and averaging between $95 and $110/sqm while secondary grade net rents will also stagnate and average between $70 and $85/sqm. 66 Cullen Avenue, Eagle Farm

Leased on behalf of Northshore Hamilton Town Centre Pty Ltd

South-west Investment activity steadies Properties are tightly held in the south-west precinct (comprises the suburbs of Darra, Wacol, Richlands, Redbank, Carole Park and Ipswich) with only one sale recorded over the last six months. As part of the Valad portfolio, a 9,666sqm warehouse facility on Boundary Road in Richlands was purchased for $12.1 million by Propertylink. This was a tempering from the preceding six months when five properties transacted with a combined value of $65.9 million. While new supply is being delivered to the market, no investment opportunities are presenting subsequently constraining investment activity. Land sales were however a characteristic with Charter Hall acquiring Prixcar Willawong and Goodman’s acquiring the Aurizon Rail Yard, which is earmarked for amalgamation with the Redbank Motorway Estate.

Larger and stronger During the first half of 2015, major transport and logistics operators Northline and TNT Express committed to their new purpose-built premises in Goodman’s Redbank Motorway Estate, joining DB Schenker. Northline, occupying 12,485sqm of space, relocated from its former Pinkenba facility while TNT had requisite for a 30,000sqm custom-designed facility. Corresponding to the theme of consolidation, relocations have enabled these tenants to improve operational and client efficiencies as these new generation buildings


deliver significant clearance and size. A further 24,599sqm of floorspace is under construction for two warehouse facilities in DEXUS Property Group’s Drive Industrial Estate at 301 Orchard Road and 255 Archerfield Road in Richlands. The prospective tenants will accompany Target and Steinhoff in the new development.

Leasing activity has been relatively subdued in the south-west with only two leases captured over the last period of around 17,000sqm, a significant drop from the previous period (88,250sqm) powered by logistics firms. As it remains a competitive market for landlords, net rents have softened with prime grade rents ranging between $95 and $110/sqm and secondary grade rents ranging between $70 and $90/sqm in the precinct. Secondary stock may struggle to compete making incentives become even more generous

BRISBANE INDUSTRIAL PRIME GRADE – AVERAGE NET FACE RENTS

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For further information please contact: Vivienne Bolla Manager | Research | Tel +61 7 3026 3305 [email protected]

Yatala Enterprise Area Leasing activity muted The Yatala Enterprise Area (including Yatala, Stapylton and Ormeau) has experienced a less vibrant wave of activity compared to other industrial markets. Although benefiting from a central location along the south-east Queensland growth corridor and situated halfway between Brisbane and the Gold Coast, the area has been perceived as a secondary market. Warehouse and logistics based operators have typically been attracted to the area, particularly those servicing the south and not requiring Airport and Port access.

Due to a combination of low vacancy and supply limitations, leasing activity was muted during the first half of 2015 with only A&L Windows signing a lease for a 6,698sqm facility on Quinns Hill Road in Stapylton over the period. Average prime grade net rents have eased over the period in light of the soft leasing market conditions and range between $95 and $110/sqm while secondary grade rents average between $70 and $90/sqm. The Yatala precinct is unlikely to witness the levels of leasing activity experienced in other markets due to the tightness of the market and limitations in stock availability with no new supply planned for delivery in 2015.

Sale and leaseback There were two transactions in the Yatala Enterprise Area. The first property transacted for $8.5 million in November 2014 at Lahrs Road in Ormeau within the Motorway Business Park. The 6,430sqm warehouse facility represented a modern structure with high bays and was sold fully leased on a ten year leaseback. It is understood the property sold within a month of being on the market reflecting a sharp yield of 7.43 percent. The second transaction was for a modern industrial facility at Burnside Road in Ormeau for $17.5 million. The property, configured to provide ten separate freestanding industrial buildings, achieved a softer yield of 8.49 per cent, reflecting its higher associated leasing risk. Over time, as land in Brisbane’s other main industrial precincts becomes exhausted, investment activity in the Yatala Enterprise Area is likely to grow with developers and owner-occupiers becoming active investors. Land values in the Yatala precinct are also lower in comparison to the Brisbane markets, which will help underpin further industrial development activity.

51-57 Qantas Drive, Brisbane Airport Leased on behalf of Brisbane Airport Corporation Pty Ltd



PERTH MARKET

First Half 2015


Prevailing economic conditions continued to have an impact on Perth’s industrial market in the March 2015 quarter. Vacancies (over 2,000sqm) had increased to 7.5 percent as at February 2015, up from 6.5 percent in July 2014, and are continuing to impact warehouse rents. Demand clearly softened off the back of lower business sentiment and moderating domestic demand.

The Western Australian economy is experiencing challenging conditions, despite continuing strong export volumes. Commodity prices have fallen and the current investment cycle has peaked. Three of the largest resource sector investment projects in Australia’s history, with a combined cost estimated at approximately US$127 billion, are expected to be completed over the next two to three years. Once these and other projects currently under construction are completed, there is little else of

similar scale in the pipeline. This investment expenditure hole is expected to be difficult to fill, and the flow on impact to the state’s economy is likely to be significant.

Notwithstanding the difficulties facing Western Australia, a re-balancing of the economy is taking place and activity in other sectors - such as residential construction, finance, health services and agriculture & fishing - is generally improving. However, these have been smaller contributors to the State’s economy, and their growth is only expected to partially offset the moderating conditions in the resources sector.

The lower Austra lian dollar is having a positive impact, as evidenced by growth in full export container movement through Fremantle Port, growing 4.9 percent over the year to February 2015.

Western Australian institutional-grade industrial assets have continued to show robust returns over the second half of 2014, and this was the top-performing asset class in Western Australia over the year to the December 2014 quarter according to IPD’s Australia Quarterly Property Digest.

IPD’s annual capital returns for Western Australian industrial assets was 0.6 of a percent softer than the 3.8 percent national average, while income return was 8.4 percent in the 12 months to December 2014. This income return result was slightly stronger than the 8.2 percent national average, but softer capital returns resulted in total return, at 12.5 percent, coming in marginally below the 13 percent national average.

Investor demand for large Prime institutional-grade assets that are tenanted or vacant with good leasing prospects remains high in this low interest rate environment, resulting in yields tightening for this class of asset. Recent transactions are showing market yields of between seven percent and eight percent. Colliers International stresses, however, that this is evident mainly in institutional-grade assets.

Yields for prime institutional grade assets firming

Tutt Bryant Portfolio (WA, NSW, QLD)Sold on behalf of Tutt Bryant


10 Clarke Street, O’ConnorSold on behalf of Australian Unity

Prime warehouse net face rents eased further, and averaged $88/sqm as at the end of the March 2015 quarter. The increase in available space means increased competition for tenants, and subsequent downward pressure on rents. This rental moderation is impacting the more abundant small to medium-sized assets to a larger degree than larger prime assets, due to differing stock levels between the two asset classes. Rents for prime institutional grade assets over 10,000sqm are averaging slightly higher, at $95/sqm.

The consolidation taking place in the resources sector has led to increased hardstand vacancy, with the low demand having a significant impact on rental rates. Hardstand rates across the metropolitan area are now approaching pre-boom levels, ranging between $10/sqm and $20/sqm.

Incentives look to have peaked in this current cycle with incentives for Prime assets rising to an average of 10 percent, in line with Secondary assets.

The 2014 calendar year ended up being the strongest year for major transactions ($3 million plus), with $649 million in transactions taking place through the year. The second half of 2014 saw 33 assets change hands for a total of $329.9 million.

At the end of the March 2015 quarter, three major transactions had been reported, totalling $51.2 million. These included the conditional contract for sale of Aspen Group’s Phoenix Road asset in Spearwood for $35 million, 50 Great Eastern Hwy in South Guildford sold for $5.1 million and 1000 Abernethy Road, High Wycombe, sold for $19.4 million.

Vacant land transactions were softer over 2014, with a total of 107 lots changing hands for a total of $126.5 million. This was 25 percent lower than 2013 and 52 percent lower than the peak of 2007. As at the end of the March 2015 quarter, no major vacant land transaction had been r eported.

SouthLeast transacted industrial market Perth’s South was the least active industrial market over 2014 with 19 major assets (over $3 million) changing hands, unchanged from 2013. However, in terms of total value, $181 million was transacted compared to $217 million in 2013.

Major transactions included the sale of 10 Clark Street, O’Connor ($8.3 million) and 74 McCoy Street in Myaree ($8.9 million).



Other sales included 49 Edison Circuit, Forrestdale which sold for $11 million and 303 Mandurah Road, East Rockingham which changed hands at $9.46 million.

Due to the availability of land in the South vacant lot transactions still dominated other regions, showing 55 transactions totalling $54.9 million. However, this was much lower than the 85 lots sold in 2013 and 89 lots in 2012. Increasing vacancy and softer tenant demand has dampened investor and developer appetite for vacant lots, but a low supply of well-serviced land could also be a contributing factor.

Vacant land sold in the South over 2014 generally ranged between $250/sqm and $550/sqm for lots between 2,000 and 5,000sqm.

As at February 2015, there was just one secondary grade asset with warehouse space over 10,000sqm vacant or available for lease, with that property offering 11,580sqm of lettable area.

There is limited variance in rents across the metropolitan area for prime warehouse assets. The achievable rental range is estimated to be between $75/sqm and $100/sqm, with incentives averaging 10 percent in the March 2015 quarter. Demand conditions are soft across the sub-regions, which were also reflected in increased average incentives.

NorthStable transaction volumesThere were 21 major transactions in the north sub-region over 2014, also a fairly stable volume as compared to the previous two years where 21 (2012) and 22 (2013) transactions occurred. These transactions totalled $219.7 million, making the north the second highest of the regions behind the east sub-region.

Major transactions in the north over the second half of 2014 included a sale and leaseback of the Ingham’s asset at 9 Baden Street, Osborne Park for $23.2 million and the sale of 22 King Edward Street, Osborne Park for $15 million.

Rents for prime warehouses remain similar to the south sub- region, generally between $75/sqm and $100/sqm. Incentives were also estimated to range between five and 15 percent as at the end of the March 2015 quarter.

Like the south sub-region, the north had just one warehouse over 10,000sqm available as at February 2015. It too was a secondary grade warehouse, with 11,000sqm of floor area.

Spearwood Industrial EstateSelling on behalf of Aspen Group


The availability of better-located vacant land in the north helped it to again come in second in terms of vacant lot sales, ahead of the east sub-region. There were a total of 42 transactions totalling $41.8 million in 2014. The majority of transactions were for lots between 2,000 and 5,000sqm, and they generally ranged between $350/sqm and $525/sqm.

EastLarge vacancies relatively stablePerth’s east sub-region again recorded the highest volume of major transactions in 2014, with 32 sales worth $248.4 million taking place. This was seven transactions higher and amounted to almost double the aggregated value of 2013. The majority of the sales did occur in the first half of 2014; however, the last quarter closed with eight transactions totalling $89.3 million.

East sub-region major transactions over the second half of 2014 included the sale of 18 Hudswell Place, Perth Airport for a reported price of $25.8 million as part of Fraser Properties’ takeover of Australand, and the RCR Mining-occupied 239 Planet Street, Welshpool which sold for $25.9 million.

Total vacant/available large warehouse space (over 10,000sqm) was the highest of the three sub-regions, with two Prime assets and two secondary assets available for lease as at February 2015, which totalled 44,533sqm.


For further information please contact: Quyen Quach Senior Analyst | Research | Tel +61 8 9261 6672 [email protected]

Again, yields for prime assets are similar to those in other sub-regions, at between seven percent and eight percent. The region is attracting strong institutional interest as it exhibits good connectivity attributes, and quality well-leased assets can command yields in the low seven and possibly high sixes in the current environment.

Only 13 parcels of vacant land totalling $29.7 million changed hands through 2014, down from 18 in 2013. Availability of land is still a contributing constraint on volumes and one of the factors that generally results in higher achievable rates per square metre in the east. For the sales that did occur through 2014, the achieved rates returned an average of about $500/sqm.

PERTH AVERAGE INDUSTRIAL LAND VALUES

$50

$150

$250

$350

$450

$550

$650

$750

H2

2008

H1

2009

H2

2009

H1

2010

H2

2010

H1

2011

H2

2011

H1

2012

H2

2012

H1

2013

H2

2013

H1

2014

H2

2014

H1

2015

Aver

age

Land

Val

ue ($

/m²)

Core Fringe

2,000m² - 4,000m² Lots


17-21 Fargo Way, WelshpoolLeased on behalf of Lyssos Investments



ADELAIDE MARKET

First Half 2015


Record volumes during 2014Last year saw a record sales volume in the Adelaide industrial market with a total of $318.31 million worth of assets sold. This was significantly boosted by the sale of the Coles distribution centre at 2 Sturton Road, Burton. This was sold by Goodman for $153 million to Charter Hall with a 7.5 percent yield. This is the single largest industrial transaction ever seen in the Adelaide industrial market. Most of the other assets to transact were part of national portfolio sales which included the sale of the two Ingham assets and the Fraser Centrepoint takeover of Australand, which both included assets in the Adelaide market. These transactions have significantly boosted the amount of institutional investment in industrial property within the Adelaide market. Institutional investment has grown significantly over the last three years, with many institutional investors recapitalised and looking for opportunities to purchase in the Adelaide market. This has resulted in yield compression for prime grade assets within the key industrial markets.

The investment market has continued to see improvements in enquiry, with the depth of enquiry on campaigns improving during the first quarter of 2015. With the current low interest rate environment and a significant weight of capital looking to invest in the property sector, the Adelaide industrial investment market is expected to continue to improve. Prime quality assets are experiencing improved demand and it is therefore expected that yields will continue to tighten for this grade of assets in the short to medium term. This is in line with the investment trends witnessed on the east coast. Yields in the Adelaide industrial market remain attractive to institutional investors with a spread of between 100 to 200 basis points between east coast industrial assets and Adelaide.

Vacant space over 5,000sqm has seen an increase over the last six months with a vacancy rate of 4.6 percent. This is up from the vacancy rate of 3.9 percent in September 2014. Much of this increase is a result of the inclusion of the former Accolade Wines distribution centre which has increased vacancy in the southern market significantly. Enquiry has improved during the first quarter of this year and it is therefore likely that vacancy will fall over the next six months. Incentives across both prime and secondary

grade assets have increased with prime incentives in the range of 10 to 20 percent and secondary 15 to 25 percent. Rents across both prime and secondary grade space have eased slightly, mostly due to the upper end of the rental ranges in most precincts easing.

Despite a fall in vacancy in the current period in the outer north precinct there are some headwinds in this industrial precinct over the medium term. The imminent closure of the Holden plant in 2017 will have a significant impact on vacancy and demand in this precinct over the medium term. Vacancy is already above 10 percent and the current demand for space in this precinct suggests that this precinct is in for an extended period of higher vacancy. This precinct however has significant development ready land which is at a significant discount to some of the more established industrial precincts. In particular the Direk precinct has accounted for a significant proportion of the new design and construct activity over the last four years.

34-44 Jonal Drive, Cavan (part of the Altis Portfolio) Sold on behalf of Altis Property Partners Pty Ltd


Despite the improving conditions in the investment and leasing markets there are however some challenges facing certain precincts in Adelaide industrial market over the medium term. The closure of Holden and the uncertainty surrounding the future of the submarines contracts is likely to restrain demand in the Techport and the outer north market. With the imminent closure of Holden in 2017 the outer north market is expected to see vacancy increase in the short term. This is through the withdrawal of the Holden site once production ceases and the risk of suppliers to Holden located in the area also vacating at the same time. There are however opportunities in this market with a significant supply of inexpensive development ready land and continued improvements to infrastructure making this an attractive option for design and construct projects for growth industries such as logistics. There are also opportunities for occupiers to secure quality prime grade accommodation, most which are less than ten years old for very attractive rents.

Inner-north / outer-northGillman land releaseThe land sale of 400ha of industrial development land at Gillman from the State Government to Adelaide Capital Partners is due to see the first portion of the sale settle in May. This is one of the largest land industrial releases the inner north market has seen. Once settlement has occurred, marketing will commence on the first land release. It is expected that the land supply in this area could service industrial land requirements in the inner north precinct for up to 20 years.

New requirements likely to lead to a stronger supply pipelineThe Adelaide industrial market saw 59,500sqm of construction complete during 2014 which is just below the five year average. The pipeline for 2015 at this stage is looking stronger with

66,000sqm due to complete in the year. There is however over 100,000sqm of requirements currently in the market, with at least some of these tenants likely to commit to new design and construct project. It is therefore expected that the supply delivered in 2015 will be higher than current forecasts in the next 12 to 18 months.

Aldi and Costco plans are underwayAldi have commenced construction of their new distribution centre at Regency Park. The 30,000sqm distribution centre is due to complete in late 2015. This distribution centre will service the expansion of Aldi into the Adelaide market with current plans are to open between 40-50 stores in the South Australian market over the longer term. Costco has completed construction of their 14,000sqm purpose built facility at Kilburn. This is the first store for Adelaide and is part of a significant national expansion for the US retailer in the Australian market. Masters have also opened their first store in the Adelaide metro area with the completion of their store at the Adelaide Airport which opened in February.

Sales volumes reaches an all time highTotal sales volumes in 2014 reached an all time high during 2014 with a total volume of $318 million over 11 assets. There have been no significant sales in the Adelaide industrial market during the first quarter of 2015. The last 12 months has seen the continued trend of the inflow of institutional capital in to the Adelaide industrial markets. This has resulted in a tightening of yields for prime grade assets. Demand for institutional grade assets remains solid particularly for assets with long leases to good tenants in the traditional core precincts. Secondary grade yields haven’t changed dramatically by remain high when compared to prime grade assets. This is due to the higher risks surrounding tenant retention in this market over the medium term and therefore there is a much higher risk premium placed on secondary assets in this market.

Adelaide southTonsleyThe Tonsley project continues to take shape with Flinders University completing construction of an 18,000sqm campus for the beginning of the 2015 academic year. The construction under the main assembly building continues with stage one of the retail offering, mostly food and beverage retailers now complete. The Mining and Petroleum Centre of Excellence has completed at Tonsley with the support of both government and industry to complete construction. The Drills Core Library is under construction and is due to complete this year. Enquiry on the pods under the main assembly building has improved with several tenants expressing interest in being located in this facility. Road infrastructure construction continues with the first stage of the 13-15 Deloraine Avenue, Edwardstown

Leased on behalf of Aurora Auto Accessories Pty Ltd




For further information please contact: Kate Gray Associate Director | Research | Tel +61 8305 8806 [email protected]

infrastructure servicing the industrial land complete via the South Road frontage. As a result enquiry for space, both land and under the main assembly building at Tonsley continues to improve. The Tonsley precinct is being developed by Renewal SA and is an advanced manufacturing hub which will employ 6,300 people and educate 8,500 students per year. Siemens facility new facility is nearing completion. This purpose built facility will accommodate a state of the art turbine testing plant. CIC Australia has been selected as the preferred developer for the residential component of the Tonsley project. This project is in the planning stages, but is expected to be a medium density development. This is expected to house 1,200 people once the project is completed.

The next stages of the north south corridorThe next stage of the upgrade of the north south corridor is planned to commence this year. This project addresses the 3.7km section of South Road between the Torrens River and Torrens River and is therefore called the Torrens to Torrens project. This $896 million project includes the lowering of a 2.5km section of road, an overpass of the Outer Harbor line and upgrades to the to Torrens Road, Hawker Street, Hurtle Street, Port Road, Grange Road/Manton Street and Ashwin Parade/West Thebarton Road. This road will see three lanes in both directions for this section of the road. The planned upgrade is expected to start in the second quarter this year and complete in 2018.

The Darlington upgrade has seen $620 million committed to this project. Early planning is underway for the Darlington project with the Project Assessment Report due to complete in June 2015.

7-9 Opala Street, Regency ParkSold on behalf of Yekmia Pty Ltd

Both of these projects are part of the large strategic vision for the North South Corridor, which is a 78 kilometre road transport corridor from Gawler to Noarlunga. This is the most important transport corridor in Adelaide and the completion of this project will support further residential and industrial growth over the next 30 years. Over the last five years 50 kilometres of this roadway has seem upgrades and includes Northern Expressway, Port River Expressway, Gallipoli underpass, duplication of the Southern Expressway and the North-South Motorway.

TOTAL ADELAIDE INDUSTRIAL CONTRUCTION

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ADELAIDE INDUSTRIAL SALES VOLUMES

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150

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2011 2012 2013 2014 2015

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Sales


ADELAIDE PRIME GRADE INDUSTRIAL MARKET INDICATORS


AVERAGE YIELD


H1 2015

H2 2015

H1 2015

H2 2015

H1 2015

H2 2015

Outer north $85 8.3% $75

Inner north $113 8% $210

Inner west $143 7.4% $425

Inner south $120 7.9% $410 /

Outer south $78 9.5% $85




NEW ZEALAND MARKETIndustrial’s golden run continues

First Half 2015


The strength in the industrial sector forges on in New Zealand. It is supported by high occupational demand, rising rents and yield-hungry investors competing for limited stock availability. Forecasts for further employment and industrial business growth has spurred development activity, hampered by suitable land supply, which in some areas remains in a critical shortage. The main centres of Auckland, Wellington and Christchurch keep hitting new highs across most indicators, with provincial cities also reporting solid demand. Short-term fluctuations in dairy pricing are not impacting the industrial sector’s transport and storage facility prices. Positive indicators are emerging in many markets and sectors, especially in construction, transport and trade.

Key findings• The health of the industrial sector is a reflection of the health

of the New Zealand economy. There are around 640,000 full time equivalents (FTEs) working in the industrial sector, accounting for a third of New Zealand’s employment and a third of its GDP.

• Occupational demand for industrial premises in Auckland is high, with the vacancy rate achieving another record low, now at 2.6 per cent. Prime rents are growing and yields are firming. Forecasts are for further rent rises between two per cent and three per cent per annum with yields firming by 25 to 50 basis points per annum

• Wellington is an industrial investor hotspot as purchasers look outside traditional markets and back a positive long-term growth story, while owner-occupiers take advantage of cyclically low interest rates.

• The rebuild of Christchurch continues, adding significant pressure on resources, however, as construction peaks, recent rampant double-digit value growth for industrial rents has slowed and plateaued as supply catches up to demand.

AucklandDemand continues to reach new highsThe unrelenting squeeze on industrial space in the Auckland market remains, with the latest vacancy rate showing market conditions have never been as tight in the last two decades. The Auckland regional vacancy rate is at 2.6 percent as at February 2015 compared to three percent a year ago, which was a record at the time. The pressure on prime space remains, which is at 1.3 percent, or just 31,000sqm. Secondary vacant space is at three percent, or 255,000sqm.

38 Dalgety Drive, WiriSold on behalf of Goodman Nominee NZ Ltd



AUCKLAND INDUSTRIAL VACANCY BY PRECINCT

1%

2%

3%

4%

5%

6%

Ove

rall

One

hung

a/Pe

nros

e

Rose

bank

/Avo

ndal

e

Mt W

ellin

gton

Airp

ort C

orrid

or

Man

ukau

/Wiri

East

Tam

aki

Mai

rang

i Bay

Nort

h H

arbo

ur

Wai

rau

Valle

y

New

Lyn

n

Hen

ders

on

Feb-14Feb-15

Source: Colliers Research New Zealand

Construction lifts, but more neededDevelopers are responding to the higher demand environment. Over the last year there has been a net supply increase in overall stock by 163,00sqm. Total industrial stock in the Auckland market aggregates to almost 11 million square metres. There are 19 premises comprising 150,000sqm of industrial space currently under construction with an expected completion date by the end of 2015. The majority of new development activity is in the Manukau area and will be undertaken by Goodman Property Trust and Auckland Airport. Zoning under the Proposed Auckland Unitary Plan (PAUP) to restrict uses within zones is being carefully monitored by owners of sites currently operating under a different useatrick and others who can leverage existing large land banks.

27 Ross Reid Place, East TamakiSold on behalf of James Knox Investments Pty Ltd

Rents riseThe extended pressure on the occupational market with relatively little alternatives for tenants has meant that landlords are more confident in pushing up rents to new highs. This has been exacerbated by the increases in construction costs which have elevated costs for new builds. While the differential between existing and new builds remains between $20 and $30/sqm, the existing market is now catching up, with faster rates of growth than experienced in previous years. Rents for prime warehouse space increased by 1.4 percent in the year to March 2015, and a further increase of between two percent and three percent per annum over 2015 and 2016 is forecast as the economy grows and business and consumer confidence continues to bounce along at all-time highs.

Investment market strongThe boost to investor cash flow from higher rents along with low interest rates will keep yields low and values high. The search for high income yielding investments in the current environment will drive up competition from purchasers as evidenced by the recent 72 basis point yield compression which was one of the highest recorded. Average prime yields, which are already at a record low 6.7 percent in the prime sector, is forecast to reach low six percent by 2015 and 2016.


WellingtonMore leases in a tight marketClear indications of a rebound in Wellington’s industrial market are emerging which is leading to a rise in demand for all types of space. More than 30,000sqm was leased between surveys periods - excluding our recently added Kilbirnie/Rongotai and Miramar precincts. The overall Wellington industrial vacancy rate is just 5.6 percent, down from 6.9 percent a year earlier. Given the momentum in the industrial market, increases in new orders, exports and imports all supported by a general economic expansion, vacancy rates are forecast to remain low over the remainder of 2015 and into 2016.

WELLINGTON INDUSTRIAL VACANT SPACE

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000

Nov-

13No

v-14

Seaview Petone/Alicetown Grenada North

Naenae/Wingate Ngauranga Porirua

Upper Hutt Kilbirnie/Rongotai* Miramar*

Source: Colliers Research New Zealand *New precincts added to the latest survey

Rents start to pick upGreater levels of demand and the reduction in options for tenants searching for new or alternative space provides the perfect positive storm for landlords to review their stance on rental growth. Further reductions in insurance costs over the

last six months have also assisted some landlords in the gross lease market, which will keep some pressure off tenants. Gross rents for new or modern space as well as existing established premises are up by three percent p.a. and two percent per annum respectively.

National buyers come to townTypically characterised by local private purchasers, Wellington’s industrial sector has emerged as a hotspot for national listed sector buyers, too. One example is a five property industrial portfolio purchase totalling $59 million by listed property company Argosy Property. The purchase, which comprises 42,000sqm of space, provided a blended yield of over 8.2 percent, and follows the recent purchase of the Masterpet store in 2014 for $15.3 million at a 7.6 percent yield by PFI. Examples of other significant purchases such as Amourguard at 13 Jarden Mile and Fonterra at 12 Tyers Road, Ngauranga as well as Printlink at 33-43 Jackson Street, Petone had yields ranging between 6.74 percent and 11.58 percent, indicating a wide variety of opportunities for passive and add-value investment.

ChristchurchDemand remains strongGrowth in construction, manufacturing and wholesale trade industries support future growth, but more moderate, expansion will occur as the rebuild activity dissipates over time. The resultant demand from the current phase of growth has led to industrial vacancy rates halving over the last two years, now at 3.1 percent overall. All of our sub-precincts monitored in Christchurch have experienced this rate of decrease in available space, creating an undersupply situation in many parts of the region.

31 Maurice Road, PenroseLeased on behalf of Southbourne Holdings Ltd




For further information please contact: Chris Dibble National Manager | Research | Tel +64 9 359 7919 [email protected]

71 Westney Road, MangereSold on behalf of Westney Road Warehouse Ltd

CHRISTCHURCH INDUSTRIAL VACANCY

0%

2%

4%

6%

8%

10%

12%

Ove

rall

Hor

nby/

Islin

gton

Mid

dlet

on/S

ockb

urn

Syde

nham

Sep-13Sep-14

Source: Colliers Research New Zealand

Rental growth slowsAverage rents for warehouse and industrial office space have plateaued, with the rate of growth slowing considerably in comparison to immediately following the earthquakes. Typical prime warehouse rents range between $90/sqm per annum and $125/sqm per annum, barely increasing over the year compared to the annual double-digit growth between 2012 and 2014. Given the number of workers and businesses in the industrial sector continues to grow, coupled with a low vacancy rate, but better prospects for supply over the medium term, average rental growth is expected to remain in a holding pattern of the next few years as the market takes stock of the new rates..

Christchurch investment activity robustLocal industrial settled sales topped $234 million in 2014, including 22 sales of $2 million and over with an aggregated value of $109.8 million. Industrial settled sales of $2 million and

under totalled 222 with an aggregated value of $124.2 million. More data on settled sales over the next couple of months, will likely push total sales for Christchurch further, nearing $300 million for the year. The high levels of activity is similar to 2013, and indicates an active market with healthy turnover activity. This is also appreciable with prime investment yields now ranging between 6.75 percent and 7.75 percent.

Outlook• The fortunes of the industrial sector are commensurate with

the fortunes of the economy, and current forecasts point to a continued run of positive growth for New Zealand. This will keep the sector running strongly over the next few years.

• Landlords will continue to focus on the growth sectors of the industrial market – transport, storage, construction and trade – where new build activity is rising along with rents. The manufacturing sector will provide a solid, but diminishing, level of occupational demand over time, primarily for older stock.

• The two-tier rental market gap between new and old properties is widening, influenced by the rise in construction costs and land values. Benchmark rents for new builds will be a growing occurrence in most markets.

• Investor appetite for good quality property anywhere in New Zealand is strong, with investment yields in the industrial sector forecast to firm further despite being at record lows. Investors have re-weighted risk appetite in a growing economy with low interest rates and competitive funding rates.


Our experience INDUSTRIAL


How else can we help you?Speak to one of our property experts [email protected]

IN THE LAST 18 MONTHS

leased 66 Cullen Avenue Eagle Farm, Qld50,000m²

On behalf of Northshore Hamilton Town Centre Pty Ltd

56-60 Toll Drive, Altona North, Vic17,500m²

On behalf of Stockland

35 Bryant Street Padstow, NSW17,949m²

On behalf of Nicker Miles Holdings Pty Ltd

more than 697 transactions covering 1.6 billion square metres

soldScheinberg Portfolio NSW & Qld $290 million

On behalf of The Scheinberg Family

K-Mart Distribution Centre 2-12 Banfield Court, Truganina, Vic$94.1 million

On behalf of Goodman

Altis Portfolio NSW, Vic & SA$335 million

On behalf of Altis Property Partners Pty Ltd

$4.1 billion of industrial assets

managed2 Simblist Road Port Botany, NSW39,995m²

On behalf of private investors

Curlew Street Port of Brisbane, Qld26,880m²

On behalf of private investors

44 Wharf Road North Ryde, NSW71,243m²

On the behalf of private investors

more than 2 million square metres

valuedNSW Ports (Port Botany, Port Kembla, Cooks River & Enfield Intermodal Terminals) NSW598ha (combined)

On behalf of NSW Ports

Portgate Industrial Estate Port of Brisbane, Qld153,560m²

On behalf of Monash Private Capital

Woolworths Distribution Centre Perth Airport, WA82,548m²

On behalf of Growthpoint Properties

over $8.9 billion worth of industrial space

project managedIndustrial refurbishment Padstow, NSW38,000m²

On behalf of Nicker Miles Holding

Condition Report Melbourne, Vic19,000m²

On behalf of Detmold

Industrial fitout & relocation Padstow, NSW18,0000m²

On behalf of A H Beard

projects delivered by our award winning team

Our experience INDUSTRIAL AUSTRALIA AND NEW ZEALAND

For more information about Colliers Internationaland working with us visit: www.colliers.com.au

IN THE LAST 18 MONTHS

31 Maurice Road Penrose, NZ4,825 m²

On behalf of Southbourne Holdings Ltd

Brabham Drive Huntingwood, NSW10,770m²

On behalf of Goodman Property Services (Aust) Pty Limited

101 Wilkins Road Wingfield, SA6,500m²

On behalf of Danif Property Pty Ltd

more than 697 transactions covering 1.6 billion square metres

69 Rivergate Place Murarrie, Qld$27 million

On behalf of Trinity Investment Management Limited

11 Marker Avenue, Marleston, SA$3.05 million

On behalf of Alan Charles Grace & Christine Eleanor Grace

38 Dalgety Drive Wiri, NZ$53.23 million

On behalf of Goodman Nominee NZ Ltd

$4.1 billion of industrial assets

2-6 George Young Crescent Regents Park, NSW 7,827m²

On behalf of Caleven Pty Limited

98 Toll Drive Altona North, Vic5,175m²

On behalf of Heathley Limited

20 Williamson Road Ingleburn, NSW11,283m²

On behalf of Lester Property Investments

more than 2 million square metres

2 Woolworths Way Warnervale, NSW54,533m²

On behalf of 360 Capital Industrial Fund

CSIRO Estate North Ryde, NSW38,661m²

On behalf of Challenger Life Company Limited

Coopers Brewery Regency Park, SA32,386m²

On behalf of ANZ Banking Group Limited & BankSA

over $8.9 billion worth of industrial space

Refurbishment & modernisation Girraween, NSW10,000m²

On behalf of Caleven Pty Ltd

Industrial expansion Girraween, NSW4,000m²

On behalf of Trend Windows & Doors

R&D Facility Camellia, NSW1,000m²

On behalf of Colas Australia

projects delivered by our award winning team


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Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © Colliers International 2015.

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