Riding the Wave of Growth: Capturing the Momentum of Australia's Industrial Property Expansion
Investors have been drawn to Australia's thriving industrial property sector in recent years. According to the latest report from CBRE, the total value of Australia's industrial property market has more than doubled in under three years, soaring to nearly A$300 billion.
By December 2023, the value of industrial real estate in Australia had surged from A$137 billion in September 2021 to A$293 billion. Industrial properties now represent 34% of the Australian commercial real estate investment market, up from around 20% in 2019, and are second only to the current market share of office assets.
What Drives the Rapid Growth of Industrial Property?
The rapid growth in industrialproperty is primarily driven by the rise of e-commerce, which has led to increased demand for transportation and logistics services, as well as supply chain shortages.
1. With more consumers shifting to online shopping, there has been a surge in demand for transportation, postal services, and warehousing operations, which have become the largest users of industrial assets, accounting for 31% of the sector. Meanwhile, retail and wholesale trades contribute 26% and 11% respectively.
According to Statista, the e-commerce market in Australia is projected to generate revenue of US$32.00bn by 2024, with an estimated annual growth rate of 9.15% (CAGR 2024-2029). This growth is expected to result in a market volume of US$49.57bn by 2029.
2. Supply shortages have led to record-low vacancy rates. Since the second half of 2019 (pre-pandemic), the national vacancy rate for industrial and logistics spaces has been on a downward trajectory, plunging from 6.3% in the latter half of 2019 to a historic low of 0.6% in the first half of 2023. Despite a slight uptick in the latter part of the last year to 1.1%, it remains one of the lowest levels globally.
3. Furthermore, the nationwide increase in industrial property values has been bolstered by Australia's investment in infrastructure, technological advancements, and steady population growth.
What's Next for Industrial Property?
Sass Jalili, the Australian head of industrial and logistics research at CBRE, predicts that Australia's investable universe for industrial and logistics properties will reach $410 billion in the next 10 years, making it the largest commercial asset class in the next 12 to 18 months.
The demand for industrial property remains high, and CBRE has identified approximately $20 billion in capital looking to invest in industrial and logistics assets, which is about four times the amount of warehouses that were traded last year, totaling $5 billion.
Over the medium to long term, Australia's supply of serviced industrial zoned land will remain constrained, and this will continue to play a role in a limited development supply pipeline. Coupled with this, demand will be driven by growth in Australia's net exports, significantly rising population and expanding e-commerce sector.
Additionally, the Reserve Bank of Australia (RBA) will convene on March 18 and 19 to make its next policy decision, with a press conference to follow on March 19.
Recent macroeconomic data reveals that Australia's GDP grew by a modest 0.2% quarter-on-quarter in the fourth quarter, below the anticipated 0.3%, which has pulled the annual growth rate down from 2.1% to 1.5%. The current yield on Australian 10-year government bonds has dipped below 4%, partly reflecting the market's anticipation of a potential interest rate cut.
If the RBA move forward with a rate cut, it is expected to lower the costs associated with buying, developing, or holding industrial properties, which could stimulate demand and contribute to further price increases in the sector.
Here are the companies that could benefit from the increasing industrial property:
$Goodman Group (GMG.AU)$ originated in 1989 as a private property trust with a specific focus on industrial properties. Presently, it has evolved into an integrated group that specializes in both industrial and commercial real estate. The company owns, develops, and manages various types of properties consisting of large scale logistics facilities, warehouses, business and office parks across the world.
$Centuria Industrial REIT (CIP.AU)$ provides an opportunity for investors to invest in industrial property through a real estate investment trust. As Australia's largest domestic pure play industrial property investment vehicle, CIP has a portfolio of 88 carefully selected industrial assets valued at a total of $3.8 billion (As at 31 December 2023).
$Dexus Industria REIT (DXI.AU)$ has a primary focus on investing in top-tier industrial warehouse properties. The REIT's portfolio is strategically located in major cities across Australia, offering long-term security holders the opportunity to benefit from both sustainable income and potential capital growth.
Source: CBRE, AFR, The Property Tribune,Statista, HRB & CO, Listcorp, Oxford Economics Australia
By Moomoo News Marina
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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