THE industrial land market in Western Australia has been characterised by consistently strong demand for most of the past decade, which has been good news for investors and developers who bought land when prices were well below current levels.
Contrary to what might be expected in these circumstances, the supply of new industrial land has been modest.
One reason is planning constraints, which slow the zoning of new industrial land.
Another is tenants’ strong preference for land in the core industrial markets such as Kewdale, Welshpool and more recently Hazelmere and Henderson.
Jones Lang LaSalle head of industrial Nick Goodridge said another factor that had constrained the ability of developers to bring on new supply was the price pressure from owner-occupiers.
“Owner-occupiers always pay more for land, and they have pushed prices to levels beyond what is economic for developers,” he said.
A fourth factor is the tight lending standards applied by the banks. While established developers with a strong balance sheet can get access to finance, others are squeezed out, particularly those considering a speculative development.
Against this backdrop, the major source of new industrial land supply has been the two airport owners – Westralia Airports Corporation and Ascot Capital at Jandakot.
Listed companies like Goodman and Australand have made forays into the Perth market, but their properties near Perth Airport are fully developed.
Local groups that remain key players in the market are Coxon Group, Michael Hodgson, and Eastcourt Property Group.
All have built large portfolios of industrial land over many years but have limited capacity or appetite to bring on new supply.
Paul Letari’s family company, Toscana, and the Wheatley family’s Automotive Properties are also known to be large owners of industrial property around Perth.
Sirona Capital and ABN Group have invested in large tracts of land near Bullsbrook, which is earmarked for future industrial development, but that will occur only after zoning changes are made and transport linkages are upgraded.
Conservative
The financial prudence that has enabled property groups such as Eastcourt to stand the test of time is the very factor that limits their supply response.
“We tend not to speculate,” chairman Mike Oosterhof told WA Business News.
“We wait until there is a user looking to lease the property before we proceed with a development.”
Mr Oosterhof said there was no shortage of people wanting to invest in his projects, but he had resisted the temptation.
“I’ve often been asked that, why don’t you set up syndicates for investors,” he said.
“The answer is, I don’t need that. I’d rather spend my time growing my own portfolio and looking after the interests of the family rather than making strangers wealthy.
“Maybe we could have grown the business faster, but we’re quite comfortable where we are.
“There are three or four industrial property developers like me in Western Australia who share a similar philosophy, and we all seem to be doing reasonably well. We have no pressure from unit holders or shareholders, and that’s a nice place to be.”
There is one exception to this rule, however; one private investor has partnered with Eastcourt on several developments, but Mr Oosterhof has no interest in seeking more investors.
In terms of debt funding, Eastcourt also finds itself well placed.
“My experience is that there is no shortage of funding; it’s just that hurdle rates are a little bit more difficult,” Mr Oosterhof said.
He acknowledges that lending margins applied by banks are higher than a few years ago.
“That’s just a fact of life we have to deal with.”
Mr Oosterhof said Eastcourt worked very hard to maintain a portfolio of leased properties with strong tenants and long lease maturities, currently averaging about 7.5 years.
“That means we have good quality collateral security,” he said.
And he’s buoyed by the continued strong demand, particularly in resources and logistics.
“There is still strong demand for industrial property, whether it be warehousing or manufacturing/engineering-style developments,” Mr Oosterhof said.
“If I had 10 engineering-type factories available today, between three and 5,000 square metres, I would lease them in a week.”
Mr Oosterhof moved into property development in the mid 1980s, after deciding the sector offered better opportunities than the anodizing business his family had previously run in Belmont.
That history helped define the group’s focus.
“We decided the best area was the one we knew,” he said.
During the past 25 years, the group has built a portfolio of industrial properties from Wangara to Kwinana, Maddington and Bunbury.
Recent developments include properties purpose-built for FMC Technologies and Orontide Group at Henderson.
The group’s main focus at the moment is its Icon Industrial Park in East Rockingham. Comprising 30 hectares in total, about one third has already been developed for tenants including Steelpipe Australia, Bestbar Reinforcements, and Boral Transport.
One of the major points of difference for this project is that the entire industrial park sits on a single title, which affords flexibility in the way it is developed.
“We reticulate the entire estate ourselves in high voltage and will put in a transformer for each user where they need it; we can offer two points of supply inside the estate,” Mr Oosterhof said.
“It also offers a lot of flexibility. We have tenants who want some extra hardstand, or need the building extended, or want the fence moved. We can do that.”
Like most developers, Mr Oosterhof finds the planning and approvals process exasperating.
“My biggest concern at the moment is the amount of time and pain involved with simply getting approvals,” he said.
“It’s really difficult and mind numbing.”
