Foreign buyers key in driving demand for Australian industrial property

Industrial real estate has been a strong contender for the best performing commercial asset class over the past year and particularly so over the last six months.

Not only has industrial property proven resilient since Covid-19 hit, these assets have actually benefited from the pandemic.

While shops and offices have seen vacancies rise, the opposite has occurred in the industrial and logistics sector. Across Australia’s capital cities, industrial vacancy fell to a record low of just 2.2 per cent over the first half of this year, according to CBRE’s Industrial Vacancy Report.

A record level of industrial space was leased last year, according to Colliers International Research, which is behind the fall in vacancy. Demand has not slowed, and Colliers predict we are well on track to see even higher levels of take-up this year.

E-commerce has been a significant driver of the increased demand for space, with last year’s lockdowns accelerating growth in online retailing. A booming construction sector buoyed by government infrastructure spends and the HomeBuilder grant has also been a contributing factor.

Indicative of growing occupier demand, searches to lease industrial property on increased by 20 per cent year-on-year. Searches to buy industrial property have seen even stronger growth, up 45 per cent over the same period.

Higher search volumes have corresponded with higher transaction volumes and more than $6bn worth of industrial assets transacted over the first half of 2021 alone, according to Real Capital Analytics. This was the highest level of industrial sales recorded during the first half of a calendar year in more than a decade and accounted for 36 per cent of all commercial transaction volumes.

Driving the rise in industrial sales were overseas buyers who made up a whopping 59 per cent of volumes. This was the highest proportion of industrial sales attributed to overseas buyers on record, up from 26 per cent last year and 23 per cent in 2019.

This is unusual as, until last year, offices were the undisputed asset of choice for foreign commercial property investors.

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