_Strong industrial property performance to continue
Australia's industrial market will continue to be the strongest performing sector in the commercial property market in 2021, thanks to the rise in e-commerce and demand for logistics assets, according to our 2021 Outlook report.
The research found that despite the pandemic, capital growth for industrial assets is forecast to slow only slightly to around 4% in 2020 and 3.6% in 2021, down from 5.2% growth in 2019, with total returns likely to remain around or just under 10% this year and next year. Capital growth is then expected to pick up again in 2022 to 4.5%, with total returns to edge over 10 per cent.
“Sustained strong returns are underpinned by the accelerated structural shift towards online shopping and the confidence this is giving to investors keen to deploy capital and increase their portfolio allocations to the sector,” said Ben Burston, Partner, Chief Economist.
“While commercial property investment volumes in 2020 to the end of September are 40 per cent lower than for the same period last year, transaction volumes in the industrial sector are up by 13 per cent over the same period,” said Ben.
“Investor demand has been particularly strong for logistics and warehouse assets with long WALEs in prime locations, in close proximity to major infrastructure networks. And while the sector has seen substantial yield compression over a number of years, given the strength of demand and an even lower interest rate environment than we had at the outset of 2020 we believe there is further compression to come.’
Ben said the sustained strength of the industrial market performance had led investors to aggressively pursue assets in more niche segments of the asset class, such as cold storage facilities and data centres.
“Movement restrictions due to COVID have reinforced the demand for the major grocery chains and consequent demand for specialist cold storage facilities and also made business more dependent on digital infrastructure, accelerating the growth of cloud services,” he said.
“These new thematics are driving investors to seek exposure to these niche segments, which offer diversification with defensive characteristics through their reliable and typically long income streams.”