Industrial investment appetite hits $45 billion


The wall of institutional capital seeking exposure to prime logistics assets in Australia has skyrocketed to $45 billion, according to analysis of major investment mandates by commercial real estate agency JLL.

Industrial investment appetite hits $45 billion

Goodman Australia’s Jason Little at the massive Sydney warehouse being developed for Amazon.

Demand for logistics has surged globally – separate figures cited by Colliers in December put the total at $26 billion – as institutional investors have looked to increase their weighting to the asset class on the back of the ecommerce boom, which accelerated during the pandemic.

As a result, industrial property values have surged and yields for prime east coast assets have tightened below 5 per cent.

“In 2021, we estimate $45 billion of capital is looking to be deployed into the industrial and logistics landscape in Australia,” said JLL’s head of capital markets for logistics and industrial in Australia Tony Iuliano.

Mr Iuliano said real estate investment trusts (REITs), sovereign wealth funds and insurance groups had been the dominant purchasers of logistics assets over the past three years.

“The volume of acquisitions by these groups has been facilitated, amongst other factors, by the continued emergence of sale and leaseback opportunities from corporates who have traditionally owned their own real estate.

Examples include fund manager Charter Hall partnering last year with insurer Allianz to acquire the $650m Aldi logistics portfolio in a sale-and-leaseback deal.

In a similar vein, Charter Hall swooped on three industrial properties for $214 million as part of a sale-and-leaseback deal accompanying the acquisition of the Australasian glass bottle manufacturing assets of Owens-Illinois by Rich Lister Anthony Pratt’s Visy group.

On the development front, Goodman Group is leading the charge, having begun fitting out Australia’s largest warehouse – a 200,000-square-metre robotics-filled fulfilment centre – for online giant Amazon, due to become operational before Christmas.

Highlighting the outperformance of the sector compared with other asset classes such as office and retail, in the first three months of 2021 ASX-listed Centuria Industrial REIT lifted the value of its portfolio by $192 million to $2.6 billion on a like-for-like basis, as the weighted average capitalisation rate – or yield – tightened by 46 basis points to 4.96 per cent.

“Australia’s industrial and logistics sector has consistently delivered comparatively higher average returns than those generated overseas, and has shown low volatility of returns through the current cycle relative to other commercial property sectors,” JLL’s director of industrial research in Australia Sass J-Baleh said.

“Institutional investment appetite continues to favour this sector due to high quality covenants in institutional-grade assets and confidence in the ability to collect income. Industrial & logistics rent collection rates have remained high across most mature economies,” Ms Baleh said.

Over 2020, JLL recorded around $4.4 billion in industrial investment sales (for transactions $10 million and over). This total was 13 per cent above the 10-year annual average and slightly above the total sale volume recorded in 2019.

 

By LARRY SCHLESINGER