Cross-border investment into Australia’s industrial and logistics market shows no sign of slowdown, despite concerns over the impact of ongoing global economic volatility.
Despite this week’s decision by The Reserve Bank of Australia to hold the cash rate at 1.75 percent, pushing the dollar to over US$74 cents, foreign interest is likely to remain undeterred, according to JLL Australia’s Head of Industrial, Michael Fenton.
“By previous benchmarks, the gap between real interest rates and prime industrial yields is still high and, as a result, we expect the recent surge in capital into the sector to continue as both domestic and foreign players hunt for yield.”
“Australian logistics remain good value when compared to the rest of the world – better priced than major U.S. and European markets and, regionally, second only to China in returns.”
2015 saw a record for cross-border investment into Australian industrial, accounting for 31 percent of property transactions in the sector, driven by strong market fundamentals.
“Foreign interest tends to be cyclical,” says Fenton. “Global capital needs to minimise risk through portfolio diversification and market transparency which provides a mismatch between local pools of capital and the availability of institutional grade assets. When these assets then come to market, they are highly sought after on account of long lease terms, annual review profiles and strong covenants.”
The last 12 months have seen the initial yield barrier of six percent broken on a number of occasions, most notably with the high profile purchase of the GIC Portfolio by Ascendas for over AU$1 billion. Other prominent transactions include Mapletree’s AU$253 million acquisition of The Coles CDC at Eastern Creek in NSW and the Woolworth’s DC Dandenong South which was purchased by Charter Hall for AU$215 million.
“A number of other major assets on the market are attracting strong interest from both domestic and offshore capital – we expect prime industrial yields in Australia to remain at current levels for the foreseeable future,” says Fenton.
Head of Industrial, JLL Australia