Industrial assets may be the "safer play" for investors amidst the global impacts of COVID-19 on commercial property, new research from Savills has found. 

Savills Australia CEO Paul Craig said there had been continued demand from tenants in the sector, unlike other asset classes where activity has slowed or been put on hold.

“The last 12 months saw over $6.5 billion of industrial sales (above $5mil) across 273 transactions, many of which consisted of portfolio sales as institutional investors acquired prime industrial facilities to be buried into core portfolios," he said.

Savills APAC Real Estate Intelligence - At a glance:

• The industrial and logistics sector in Asia Pacific has proven more resilient to the COVID-19 pandemic than other real estate sectors.
• Growth in online retail is driving demand for the sector all over the region.
• The cold storage sub-sector is attracting increasing investor interest as food safety and delivery are growing priorities for consumers.

“Institutional Funds & Trusts were the most active purchasers over the 12 months to March 2020, accounting for over 50 per cent of transaction volumes."

Savills Australia National Head of Industrial & Logistics Michael Fenton said the sector continued to grow in its appeal to global investors as a stable and secure asset class, which will benefit in the post-COVID-19 era from the exponential increase in demand for online retail services.

"Well located warehouse and storage facilities which service populations of high-income households are at the forefront of investor attention, particularly within Australia’s east coast industrial markets, which has attributed to capital value growth and ongoing yield compression over the last two years," he said.

“Cold storage is intrinsically linked to the core investment themes of food security and non-discretionary retail spending.

"Regardless of the state of the economy, consumers still spend on food, and cold storage facilities are at the epicentre of the food supply chain."

Savills data shows average prime industrial yields in Sydney’s West precinct are now at 4.5 per cent with Melbourne’s West at 5.6 per cent and Brisbane’s Southside precinct at 5.9 per cent.

Mr Craig said Savills anticipated prime industrial yields in these key markets to remain "relatively stable" in the short term, although he added the spread to secondary assets will diverge as purchasers will price tenant credit risk more harshly, particularly those adversely affected by COVID-19.

Click here to view the report.

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