Changing ownership of Brisbane industrialJune 13, 2016 / By
A major shift in the Australian industrial market over the past 10 years has been the reduced level of owner occupier purchases and design & construct developments. Figure 1 shows the strong activity in the late 1990s and again in the early 2000s. The two main reasons for industrial occupiers choosing to purchase their own facilities were:
- Companies with access to sufficient capital preferred to purchase a facility rather than make provision for ongoing rental payments, and
- Industrial property owners were reluctant to accept the tenancy risks associated with specialised assets, which forced companies to build their own facilities.
Many of these owner occupiers are now taking advantage of the strong investment market to remove the assets from their balance sheets and to unlock the capital. Interest rates are at a record low and foreign capital flows to Australian real estate are at a historic high. Industrial property values have increased significantly over the past few years. In Brisbane, average prime industrial yields have tightened by 75 bps over the past two years and are now at the same level as the previous cyclical peak in 2007. The market for well leased assets is particularly strong with demand coming from institutional investors, both foreign and domestic.
Additionally, the weak occupier market has led to deals transacting at very competitive rates for companies willing to commit to long leases. Therefore a company wanting to undertake a sale and leaseback deal can take advantage of the current leasing market.
Whilst in the past there was a reluctance by institutions to invest in specialised facilities (e.g. cold storage or food processing), there is now an appetite for these investments as the tenants are generally quite “sticky” and less likely to move to other options. Some examples of this include the Inghams Portfolio sale to Charter Hall and Seabest International’s cold storage facility at Ormeau which was purchased by the unlisted trust Propertylink.
The trend of lower owner occupier activity is expected to continue with industrial property owners and developers aggressively seeking tenants by offering competitive leasing deals. Corporate owner occupiers should also continue to take advantage of the strong interest for sale and leaseback deals by institutional investors. Interestingly, Brisbane over the past 15 years has had a larger volume of owner occupier/design & construct activity than the larger markets of Sydney and Melbourne. This means that in the future there is potential for more industrial sale and leaseback deals in Brisbane than in the other cities.
1. Owner Occupier Sale: The sale of an existing building to a purchaser who intends to use it for their own purposes.
2. Design & Construct Sale: A contract by which a developer builds a facility which is then owned by an entity who intends to use it for their own purposes.
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