The surge of REITs as an attractive investment vehicle worldwide is driving demand for large industrial assets in Brisbane.

The latest research by Colliers International shows that REIT investment activity in the Brisbane industrial market has surged to 50 per cent in 2019 from 20 per cent in 2018 and circa 5 per cent in 2017.

The year-to-date volume of sales (above $5 million) in Brisbane and Yatala of $1.09 billion is on track to outperform the 2018 sale volumes. The South precinct remains as the main location of investment transactions, with circa $501 million sales representing 46 per cent of the total sales volumes. 

At a glance:

• REIT investment activity in the Brisbane industrial market surges up to 50 per cent compared to only 5 per cent in 2017
• The year-to-date volume of sales (above $5 million) in Brisbane and Yatala of $1.09 billion is on track to outperform the 2018 sale volumes
• Prime grade investments are transacting at an average yield of 5.94 per cent while secondary grade assets are trading at an average yield of 7.53 per cent

Fierce competition for industrial assets in Brisbane across a broad spectrum of investment players has driven further compression of yields in the range of 40 to 50bps over the past year.

Prime grade investments are transacting at an average yield of 5.94 per cent while secondary grade assets are trading at an average yield of 7.53 per cent.

The long-standing reduced cost of debt and the current low levels of the Australian bond yield are forecast to continue to drive further yield compression into 2020.

Karina Salas, Research Manager at Colliers International said the current infrastructure investment in projects like the M1 Pacific Motorway and the Logan Enhancement Project is strengthening the outlook of the industrial market in Brisbane, with REITs identifying this city as a strategic location for industrial investments providing long-WALE rental streams. 

“We anticipate that REITs will continue to drive a large portion of investment demand of Brisbane industrial assets over the next 12 to 18 months,” Salas said.

“This is because the Brisbane industrial market continues to consolidate as a preferred location for a variety of operators looking for affordable large-scale warehouses in proximity to a transport network offering cost-efficient connectivity to national and international markets.”

National Director of Industrial at Colliers International, Mr Matthew Frazer-Ryan said the strongest of the industrial occupier activity was occurring in the prime grade market, driven by the relocation and expansion activity within the Yatala and South precincts.

“Rental activity within the secondary market continues to soften, revealing the flight-to-quality phenomenon extended across the different Australian property asset classes,” he said. 

“Southern industrial precincts have become a strategic location for industrial expansion in southeast Queensland particularly after the recent completion of the $512 million Logan Enhancement Project and the ongoing upgrade of the M1 Pacific Motorway.

“Leasing demand of existing industrial space in the South and South West precincts has been solid over the year to date, with circa 214,000 square metres of gross lettable area (GLA) tenanted."

Frazer-Ryan said that new industrial development supply at Berrinba between 2019 and 2022 was forecast at circa 268,360 square metres with nearly 30 per cent (circa 79,200 square metres) of the space reaching practical completion in 2019.

“We anticipate that the suburb of Crestmead will see the next wave of leasing deals due to its proximity to the upgraded roads along the Logan Motorway and the availability of vacant industrial land along Green Road largely owned by institutional investors,” he said.

The average net face rents in Brisbane and Yatala increased by 1.3 per cent year on year, to $111 per square metre in September.

Click here to read the full report Industrial RFR H2 2019

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