The combination of resilient property values, strong demand, affordability (price point) and limited supply makes the sub-$5 million price bracket an attractive segment for investors across the various industrial markets in Australia.
When evaluating industrial assets within this price range, there are two main markets to consider: strata-titled units and small, freestanding buildings.
Both of these categories have witnessed significant growth in recent years. Despite facing various challenges such as higher debt costs, escalating construction expenses and substantial increases in land values, markets in major cities have shown signs of stability in recent months. These macro factors have made it increasingly difficult for developers to deliver new projects at reasonable prices.
In the western market, there is a trend of owner-occupiers purchasing leased properties with lease terms typically lasting up to 18 months. These buyers are content with the short lease term as they intend to occupy the property once the lease expires. As a result, the disclosed returns on these properties are relatively low since the investment return is not the primary consideration for the purchase. However, these properties do not appeal to investors who typically seek a longer lease term certain and higher returns due to increased costs associated with debt funding.
When we look at Sydney which is experiencing extremely low vacancy and is struggling with supply, the low end industrial market still has good demand and is still achieving strong rates, however due to the lack of supply, there is a little less activity currently with owner-occupiers being the most active. It is not uncommon in some of the precincts for these low-end assets to achieve rates over $8000 per square metre of lettable area and for rents to be north of $300 per square metre per annum.
In the south-east Queensland corner, there has been notable growth in both sales rates per square metre and industrial rentals. The three main markets have experienced significant growth in the land market in recent years, however combined with rising construction costs, this has created a challenging situation for developers. They must achieve high rates to ensure project feasibility and meet banking requirements for funding. Consequently, it has become increasingly difficult to initiate new projects, exacerbating the supply issue.
Brisbane reflects a similar trend to its coastal counterparts by experiencing significant growth in the low-end industrial market for strata units and small freestanding buildings. It is not uncommon for rentals to exceed $200 per square metre per annum net for strata units under 500 square metres, with rates per square metre ranging between $3000 and $5000. While some isolated projects have achieved rates above $6000 per square metre of lettable area, this is not the norm and typically applies to smaller units under 150 square meters with a high proportion of office space or projects with a higher spec.
David Walsh
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