Urbis Think Tank
Australia avoided a crash and Victorian Industrial Market is now stabilising
Although Australian real estate markets weathered the GFC better than other developed nations, the Industrial market was one of the first and hardest hit. Yields pushed out to nearly 9% for prime assets and 10-11% for secondary grade assets as a result of significant decline in market activity and buyer sentiment during 2008 and early 2009
However, during the latter stages of 2009 we saw a larger number of transactions, mainly by private investors, showing that yields had stabilised and much of the ‘distressed sales’ that had been forecast failed to materialise.
Fast forwarding to 2011 and real estate markets have stabilised, but there is a definite shift back to the fundamentals of property and investment parameters.
Recently, we reviewed an industrial property in Melbourne’s northern suburbs Industrial precinct, and identified some key insights:
- There is still a distinct absence of institutional buyers within the Industrial sector.
- A reduction in construction levels has reduced the threat of oversupply
- The reduction in construction is due to a number of circumstances including the lack of credit available to fund developments, lack of tenant demand, and projects being put ‘on hold’
- We are yet to see any significant change in debt markets despite increased optimism in property markets and in the wider economy.
- The lower price point over the past year has attracted private investors into the market and increased market activity.
- Yields for specialised and purpose-built facilities are still above 9.0% due to the inherent tenant vacancy risk and downtimes.
- The negative growth in rental and land values has subsided and we now expect them to stabilise.
One promising sign on the horizon is the increase in leasing activity, especially in Melbourne’s West, where businesses have benefitted from the early completion of the Deer Park Bypass that links the Western Ring Road and Western Freeway. This is a salient reminder of the importance of transport links to the success of industrial precincts, which applies to all of our cities.