DEMAND for large plots of industrial land in Perth is growing thanks to the flow-on effect of increased resources sector investment, while institutional investors are poised to re-enter the market after re-weighting their portfolios, new industry research
DEMAND for large plots of industrial land in Perth is growing thanks to the flow-on effect of increased resources sector investment, while institutional investors are poised to re-enter the market after re-weighting their portfolios, new industry research says.
Property industry analysts Colliers International’s Spring 2010 industrial market indicators report showed the industrial market in Perth stabilised over the first half of 2010, following on from strong conditions experienced in the final quarter of 2009.
Colliers research and consultancy manager Erwin Edlinger said strong economic fundamentals in Western Australia, underpinned by major investment in resources projects such as Chevron’s Gorgon LNG project, had buoyed the outlook for the industrial land market in the short- to medium-term.
“These projects have a flow-on impact to the industrial market, so all your downstream services and your processing that needs to take place ends up down in Perth and there is flow-on influence to the various industries,” Mr Edlinger told WA Business News.
“We’re seeing a lot of underlying demand from national and multi-national tenants, and their requirements for space are growing, but also larger tenants that have multiple locations are looking to consolidate into one larger central location, so that’s driving a lot of demand.
“Transport and logistics is a huge one, because WA’s typically not a manufacturing hub, it’s more of a storage, transport and distribution centre, so that’s why a lot of those transport industry companies are located in Perth.
“They’re the main drivers for the larger space, but also in the land side of it, you’re starting to see more owner-occupiers looking at acquiring land and then building their own premises.
“It probably wasn’t apparent 12-18 months ago when we had the GFC and everyone sort of shut up shop, now there is a lot more positivity, a lot more business confidence and also business growth as well and that’s leading to greater demand for land.”
According to the Colliers report, the flow-on impact, higher business confidence and the re-entry of owner-occupiers into the market with the equity and cash flow ability to finance development has translated to an increase in vacant industrial land sales.
Landgate statistics showed that vacant lot transactions totalled 128 lots in the year to June 2010, a 20 per cent increase in the volume of industrial transactions compared to the previous corresponding period.
The strongest improvement in activity was in the sub $3 million category, with demand being driven by high net worth investors and owner-occupiers competing for stock
Mr Edlinger said there was room for further improvement in transaction levels, as major real estate investment trusts and other institutional investors were now ready to re-enter the market after a period of portfolio consolidation post global financial crisis.
“The institutions that we have been meeting with have indicated they have re-weighted their portfolios, they’ve got the funds to now acquire so they’ve shifted into acquisition mode, and they’ve identified WA, as have many people, as the hotspot for Australia,” he said.
“Now the assets are getting to a size that is big enough for these institutions to start to invest in, because effectively they won’t look at assets under $10 million.”
But supply constraints were plaguing the market, Mr Edlinger said, especially with respect to larger industrial plots, which continued to be restrained by the availability of credit.
“For your larger lots, and unless you’ve got a proven track record or you’ve got a good balance sheet for some of those owner occupiers, the banks are fairly reluctant to lend,” Mr Edlinger said.
Recent policy announcements by the state government, including its planning framework Directions 2031 and beyond and the State Industrial Land Strategy have been designed to alleviate the supply constraints of large plots of industrial land, Mr Edlinger said.
“It’s been an ongoing issue for probably the last three to five years, but there has been positive movements by the state government and the various government bodies to alleviate that pressure there, and streamline a lot of the planning processes that have been hindering the release of those larger lots,” he said.
“There have been some proactive movements and they’re trying to ensure that we don’t encounter the same problems we had back in 2005 to 2007, where there just wasn’t enough industrial zoned land or large lots to service industrial demand.”
