Funds, trusts set to make their move

PRIVATE investors will face growing competition from funds and trusts as Melbourne's industrial property market consolidates over the next two years, reports suggest.

Higher population growth and stable financial markets are expected to improve the market's prospects after last year's "soft" conditions, they say.

Over the longer term, the retail sector's "clicks and bricks" online shopping transformation will prove a boon to industry players as the expansion of space goes ahead "in leaps and bounds," Savills Australia's latest Melbourne Industrial Spotlight says.

"The vast majority of warehouse space occupied currently is for taking goods for sale at bricks and mortar locations. But at the periphery there is a very large business growing in taking goods from warehouses direct to people's houses," it says.

The total space available increased over the quarter to January 2013, Knight Frank's Melbourne Industrial Vacancy Analysis said.

That had not stopped larger developers launching a number of projects to capture tenants' preference for prime stock, it said.

"The recent phenomenon of prospective tenants leasing developments prior to completion has now reached its highest levels over the past three years," Knight Frank said.

Savills noted similar trends.

Precommitments in 2012 were, overall, below historical levels, but "competition remains strong among developers to secure pre-lease tenants, limiting upward pressure on rents," Savills' research said.

Major pre-commitment activity in the year included ITW Proline (21,505 sq m in Dandenong), Kraft (23,455 sq m in Derrimut), BIC (12,100 sq m in Keysborough), Cabrini (9200 sq m in Dandenong South, Toll Transport (18,670 sq m in Truganina) and Dexion (5795 sq m, Dandenong South).

Savills' Victorian head of research, Glenn Lampard, said private investors had been quicker to recognise opportunities last year.

Melbourne's north and west experienced the greatest volume of sales last year, but private investors were particularly strong in the south-east, taking more than half the value of stock sold, he said.

Last year Savills recorded 83 sales (priced above $2 million) with an total end value of $589 million.

"Private investors remain the dominant buyer in today's industrial market," he said.

Over the 2012 year, leasing activity was significantly down on 2011.

Fifty-two deals in 2012 resulted in 366,707 sq m of industrial space being leased.

In 2011, 777,991 sq m of space was tenanted, Savills said. "The fall in activity can be seen to quite clearly demonstrate what a difficult year this . . . [was] for landlords and developers," the report said.

Funds and trusts, previously profoundly affected by the global financial crisis, were now beginning to return to property, representing about one-third of all transactions.

By contrast, owner-occupiers bought about 19 per cent of offerings.

Capital values had increased between 7 and 25 per cent for all industrial regions since the bottom of the market in March 2009.

Investment yields for prime industrial property range from 7.5 to 8.75 per cent, while land values range from $115 to $200 a sq m for land between one and five hectares.

Take-up for speculative space was good across both the Sydney and Melbourne markets, spurring more speculative construction, Knight Frank said.

Total industrial vacancy on the eastern seaboard increased only marginally over the past quarter to 1.43 million sq m, 13 per cent higher than the level recorded a year ago, the company said.