Activity to pick up as investors chase yields

REAL ESTATE is tipped to be one of the busier sectors this year as investors seek out higher yields while interest rates remain low.

Direct purchases are set to increase. Local and overseas superannuation funds are expected to lead the way. In the past week the global investment group BlackRock has completed the sale of 555 Lonsdale Street in Melbourne to the Hong Kong-based LaSalle Investment Management's Australian fund for $57.5 million. The 1980s 16-storey building has 16,176 square metres of net lettable area, including a small retail component.

Real estate investment trusts (REITs) are also starting the new year on the front foot with mergers and acquisitions and larger scale leases expected to dominate the headlines in coming months.

In the lead-up to the reporting season for the first half of the 2013 financial year, Goodman Group has unveiled projects with an end value of about $450 million.

These comprise 210,000 square metres of new industrial and commercial development projects across Australia. This is in addition to $227 million of works in progress.

Goodman's clients include Bunnings, Metcash, DHL, Linfox, Canon and Fujitsu, reflecting the growth in demand for groceries, computer parts and the distribution of goods bought on the internet.

Of the eight planned projects, the largest is a 53,305 square metre warehouse and distribution centre, which has an end value of $128 million. Leasing agents suggested it was under contract to Toll Australia.

Goodman's general manager Australia, Jason Little, said it was one of the busiest starts to a new calendar year that he had experienced. "We are seeing a return of confidence from a range of companies and industries that have been reluctant to commit in the past," he said.

"Where two years ago, these businesses would only take a one-year option on a lease, they are now prepared to commit to a longer-term tenure. "The trigger is not just e-commerce, in terms of needing storage for goods bought on the internet, but growth in the underlying business, as evidenced by the leases from retailer Bunnings to Bantex Australia (a manufacturer and supplier of office products)."

For the industrial sector, analysts at Bank of America Merrill Lynch have forecast modest growth in rents of about 1 per cent in the coming reporting season.

They said industrial development activity should remain a feature, with Goodman and Dexus Property likely to reveal profits in line with guidance.

"Access to investment-grade stock is limited for those looking to increase their exposure," they said.