Internet drives building boom

There is as much as $1 billion of new deals and public offerings in the industrial property sector ahead, say agents and bankers.

The two latest in the pipeline are the $180 million Fife Capital offer and APN Property's $250 million industrial and office trust.

The senior analyst, property, at Morningstar, Tony Sherlock said industrial property attracts investors due to high yields and few competitive threats. "Industrial properties on the whole don't have 'moat' traits due to low entry barriers," he said.

"Nonetheless, the sector is attractive at present as yields are high and downside risks in major Australian cities are limited given modest levels of speculative developments. Further, good-quality industrial assets should see solid tenant demand continue from internet retailers, and large retailers and other businesses seeking to achieve scale benefits in their logistics infrastructure."

In its latest report, Savills says industrial leasing activity has remained steady in the 12 months to September 2013, with 1,166,773 square metres of industrial leasing reported, 18.3 per cent up on the previous 12 months.

Savills Australia research shows the most notable move has been for leases over 15,000 square metres, which accounted for more than 50 per cent of industrial leasing activity, the likes of which we have not seen since 2003. The report says that more than 71 per cent of leases in excess of 15,000 square metres were in the Western precinct - in 2003, the area accounted for 23 per cent of that segment.

The rise in demand for warehouses and distribution centres has come with an improvement in access roads and road transportation and the growth of e-commerce.

Mr Sherlock said, for companies such as Goodman Group, medium-term growth in online retail was expected to be a key driver of demand for modern logistics facilities.

Darren Curry, the divisional director NSW industrial at Savills Australia, said there was a huge amount of pre-lease activity about to complete before the year ends.

"We believe that will be somewhere in the tune of 130,000 square metres in the Eastern Creek and Erskine Park precincts, and all these deals are being courted by major institutional developers," Mr Curry said.

"Leasing demand for western Sydney has vastly changed over the past five to six years and we don't expect this demand to slow down. Not only is it now one of the largest manufacturing and warehousing regions within Australia, the M7 and M4 corridors with pending infrastructure upgrades will ensure the area's future appeal over the next decade."

Mr Curry said the Western region can be 40-50 per cent cheaper as a rental option than being close to the port and airport precincts.