Larry Schlesinger | 14 November 2012

Local and foreign institutional investors swoop for prime Sydney industrial assets

Foreign and domestic institutional investors have “dominated” the purchase of prime Sydney industrial assets over the past six months to October, according to the latest report from Colliers International.

GPT, GIC of Singapore, Goodman, Charter Hall, Dexus and Aviva all purchased assets over this  period.

“Secure, long-term leases and competitive yields that prime grade assets offer have driven risk-averse institutional buyers back into the market,” notes Colliers International.

At the same, “consolidation and cost-reduction strategies has seen tenants seek out quality facilities that assist the performance of their businesses”.

Institutional investor acquisitions over the past six months have included Goodman’s acquisition of 105-111 Vanessa Street, Kingsgrove, measuring 33,200 square metres, the only prime-grade investment sale to take place to date in 2012 within the south Sydney industrial market. The $48.5 million sale reflected a capital value of $1,960 per square metre, making it the biggest industrial purchase over the past six months.

GIC of Singapore secured the second biggest purchase of this period, paying $28 million ($1,325 per square metre per annum) for 94-106 Lenore Lane in Erskine Park on yield of 8.15%. The 21,000-square-metre facility was leased to DB Schenker, one of the world’s leading integrated logistics services providers, in April on a seven-year lease. The vendor was Dexus.

The report notes strong ongoing demand for prime-grade facilities “tightening availability”, with prime-grade rents having increased by as much as 5% in some markets over the past six months.

There is currently around 232,200 square metres of industrial space under construction across Sydney, with only 6,000 square metres more than halfway through the construction process.

Despite the success of a number of speculative developments over the past 12 months, there are a limited number of speculative projects due for completion over the remainder of 2012.

However, there is a strong pipeline of projects planned for the next development phase with 219,500 square metres of projects having already received development approval and 181,000 square metres being tendered for construction.

The most expensive industrial market to rent in Sydney is the northern market (in an arc from North Sydney to Hornsby), where prime net face rents range from $160 to $190 per square metre per annum, with prime yields ranging from 8% to 8.75% and secondary yields ranging from 9.5% to 11%.

Click to enlarge

However, Colliers International notes that stock, on or off market for sale, does not meet institutional investor requirement of a prime asset with a long weighted average lease expiry (WALE).

As a result of the market bottoming out, a number of opportunistic buyers look to acquire secondary grade assets at yields higher than 10%.

These sales include 114-120 Old Pittwater Road, Brookvale, a secondary-grade asset was purchased by Primewest for $40.5 million, representing a market yield of 10.53%.

“These buyers are looking to take on the leasing risk, re-lease, reposition and sell the asset within a three to five year time frame," notes Colliers International.

The largest industrial pre-commitment over the past six months was Super Retail Group agreeing to lease a 45,000-square-metre prime-grade facility at Lenore Drive, Erskine Park with a lease term of 15 years.

p top listings