The Australian industrial sector has now undergone nine consecutive years of sales volume growth, with new records set every year since 2014. Much of this astonishing growth is attributed to an increased offshore participation.
The Australian industrial market received above AUD3.02 billion (US$2.29 billion) of inbound capital last year. This accounted for 45 per cent of last year’s overall investment volumes. Offshore investment volumes experienced an average annual growth rate of 189% over the past three years. Thus it’s not surprising that Australia was the preferred destination for cross-border capital in the Asia-Pacific region. Buyers from Singapore and the United States led activity with respective total acquisitions above AUD1.90 billion (US$1.44 billion) and AUD1.71 billion (US$1.30 billion).
At this stage, it’s hard to foresee any of President Trump’s policies affecting US investment into Australia’s logistics sector. Indeed, much of the today’s conversation on capital controls surround measures on China’s outbound capital. China’s participation in Australia’s industrial sector to date has been mainly limited to warehouses bought for the purpose of converting to residential. We, therefore, don’t expect the direct effects of China’s capital controls to materialise within the traditional industrial market.
Changes in industrial sector
Australia’s industrial sector has undergone a rapid institutionalisation over the past decade too. Portfolio transaction volumes have climbed in lockstep with offshore investment interest. Portfolio transactions volumes rose by an average of 155% since 2013, accounting for over AUD2.1 billion (US$1.59 billion) in 2016. This remarkable growth has occurred against the backdrop of a sector with a risk profile on the move. Three main reasons have underscored this: record infrastructure development, technology, and the institutionalisation of the industry itself.
Firstly, more than AUD99.7 billion (USD75.6 billion) of transportation infrastructure projects are currently underway. This dwarfs any infrastructure booms of the past. These projects will have a profound impact on the logistics sector – reducing operational costs, unlocking new markets and increasing the underlying value of others.
Secondly, technology is driving greater efficiency in the market. Automation is now helping increase the speed and density at which goods are stored. It’s also helping reduce the energy costs of the assets themselves. The use of photovoltaics, control systems, rainwater retention and other measures have become increasingly feasible.
As pundits look toward the prospective entrance of Amazon and Alibaba, the requirements from distribution centres will evolve rapidly. The advent of same-day-delivery and, in turn, the requirement for last-mile fulfilment marks a new battleground for the domestic sector.
And finally, the institutionalisation of the sector has ensured the greater availability of data and benchmarks. Never has the allocation of capital toward the industrial assets been so high. The sector will now look to capitalise on the confluence of a softer dollar and newly concluded free trade agreements with China, Japan and Korea. Demand from sub-sectors such as food and beverage have markedly grown more recently. Absorption from such users grew by an average of 173 per cent per annum since 2014.
Most importantly, in the eyes of the investor, the sector may travel a path less volatile – somewhat detached from the outcomes from Brexit, Europe or US trade revisions.
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