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Q1-17 - Industrial Markets Wrap Up


Industrial Markets Wrap Up - Q1, 2017

Industrial markets in Q1, 2016 reflected a lower level of activity due to the absence of the larger portfolio and one off deals that have been evident in the last two quarters of 2016.

Industrial property transactions in Q1, 2017 dropped a modest 5% in volume to $457 million compared to Q1, 2016 at $480 million with a fairly "normal" mix in number and prices achieved.

NSW accounted for half of the value of transactions with Victoria taking a third.

Only one asset traded above $100M, the LOGOS acquisition of the Woolworths Distribution Centre at Minchinbury, NSW for $161 million.

Through the most part of 2016, industrial property yields were stable, averaging approximately 7.0%. The 1st Quarter 2017, shows a marked sharpening to 6.5% however there are only a few transactions revealing their passing yield and those that did enjoyed long term leases to high quality covenants, worthy of a sharper yield, so I regard this quarter's average yield as an anomaly.

An alternative indicated a value for industrial assets is the value per square metre of NLA. After strong increases in value of the sold assets through mid 2016, the nature of the assets sales in Q1, 2016 revealed a lower average of approx $2,000/sqm.

So What has changed ?

Clearly things have changed over the past quarter. The new US government has begun to have an influence on the global market. Ten year Aussie Bonds yields rose 40Bps shortly after the election and continued to climb to a high of 2.98%, and now settled to 2.72%. The prospects of higher US interest rates has elevated as has the prospects of higher local interest rates to counteract what may become a strengthen Australian economy and a falling Aussie dollar. As these factors play out, there also remains the prospect of foreign capital returning offshore to chase better returns.

On the flip slide, a strengthening Australian economy will continue to support employment growth and occupier demand.