The usually staid market for Australian warehouses is heating up as investors chase a limited supply of properties for returns that are beating offices and shopping centres.
Stockland, the nation's biggest diversified real estate investment trust, plans to double its holdings of industrial properties within five years. Goodman Group, the world's second-biggest warehouse developer, raised A$1 billion (HK$7.34 billion) for its Australian industrial property fund in the 12 months ended in June. Australian reits plan to invest more than A$3 billion in the asset class over the next five years.
Investment groups with more financial flexibility after cutting debt and seeing their share prices rise 46 per cent over the past two years, are looking at warehouses to bolster earnings as a decline in white-collar jobs weighs on office demand and retail sales growth slows. Some may come up short as prime buildings available for purchase are constrained, according to broker Jones Lang LaSalle.
"There is a significant number of buyers in the market chasing a limited amount of product," said Michael Fenton, Sydney-based head of industrial property at Jones Lang LaSalle, who forecasts yields on warehouses could shrink by about 0.25 percentage points within a year as prices rise.
"A lot of the reits will struggle to meet the upper end of their projected targets for acquisitions over the next year or two. I don't think they will overpay, but they will be operating at the upper end of the pricing range."
Industrial properties delivered rental returns of 8.6 per cent in the year to June 30, compared with 7 per cent for retail and 7.3 per cent for offices, according to the Property Council/IPD Australia All Property Index.
The value of A-grade industrial properties rose 4.9 per cent as of June 30 from a year earlier, according to CBRE Group.