Perth, WA

Perth’s robust industrial property sector is set to retain its position as the strongest in the WA market over the coming year with strong levels of demand from investors and owner-occupiers alike continuing to drive growth and activity, according to the latest research from Colliers International.

The Colliers International Autumn Industrial Market Indicators Report, released today, found the level of buyer demand for vacant industrial land in particular in Perth had continued unabated despite the recent turmoil in economic markets – making the Perth industrial sector a standout on the national stage, with key eastern States markets tipped to shift towards stronger leasing activity in the face of the higher interest rate environment and the costs of borrowing.

In contrast, the Colliers International research found high company profits coupled with strong business confidence in WA had fuelled an increase in owner-occupier participation in the market, with growing interest from property trusts and institutions for industrial investments also contributing to strong capital value growth and a tightening of yields over the past year.

While concern over bottom lines had seen that activity begin to diminish in the Sydney and Melbourne markets in particular, Perth showed no signs of slowing after a series of record-breaking sales in 2007 which included the sale of Amcor’s 38ha Bibra Lake site for $57 million, equating to $150sq m of land, and a 34ha parcel in Hazelmere, which fetched $70.05 million, equating to $207sq m – both brokered by Colliers International.

Colliers International Industrial Agency Director Wayne Chorley said big-name local, national and even international players were actively hunting down large-scale industrial sites for sale or lease in the Perth market, with fierce competition for available property.

“We currently have clients across the board seeking a total of more than 75,000sq m, comprising companies wanting general warehouse space or resources-related companies wanting to set up in WA,” he said.

“Many of them are seeing a paradigm shift in the size and scale of their operations, and you’re looking at big resources-based companies wanting to set up what is essentially a South-East Asian head office or base of operations – and they are massive requirements.”

The Colliers International report found the WA industrial property sector was likely to reap the benefits of the State’s strong economic forecasts, as investors sought to transfer money away from the turmoil of the stockmarket and a softening residential property sector.

“We would expect to see a ‘flight to property’ as a result of the nervousness and uncertainty around the stockmarket, and the industrial sector represents a much more attractive investment than other market sectors in current conditions,” said Colliers International Research Consultancy Manager Erwin Edlinger.

“That will mean yields will remain tight – at somewhere between 6.5 per cent and 7.75 per cent depending on the size of the asset – despite the increasing cost of funds thanks to rising interest rates and increased caution by lending institutions.”

Land Values

The high level of demand for industrial land has seen vacant land selling almost as soon as it hits the market, with land values within strategic industrial precincts now topping $500sq m and some estates approaching $700sq m. Established industrial precincts located closer to the CBD, such as Osborne Park, were now achieving $1,000sq m as competition from commercial and office use competed with industrial space.

Mr Edlinger said the level of demand for industrial land had seen benchmarks continually reset in 2007.

“A jump in owner-occupier participation at the smaller end of the market has boosted underlying land values, and that has flowed on to significant growth in larger general industry lots and englobo parcels of land that have the potential for subdivision,” said Mr Edlinger.

The Colliers International Research found land rates for smaller englobo parcels had surpassed $250sq m, with one recent sale in the eastern suburbs equating to $270sq m.

Demand for modern, well-located industrial property underpinned by strong lease agreements remained high, led by high-wealth individuals, property syndicates and institutions. However, growth in land values in 2008 would not achieve the significant increases seen in 2007, with more moderate increases expected.

Yields had continued to tighten on the back of high demand and limited supply, with the current range sitting between 6.5 per cent and 7.5 per cent for well-located properties with long-term leases.

Rents

After many years of largely static industrial rents, Colliers International found a shortage of stock combined with increases in land values and construction costs had seen rents climb rapidly during 2007.

Average rents for well-located space is now approaching the $90sq m mark, with further growth tipped in the year ahead – however, the introduction of new supply would see more moderate increases than those achieved in 2007.

“When you combine the shortage of vacant land – even with the new supply coming online this year – with construction costs and delays, the battle for space will continue to be fierce and we can expect average rents to hit $100sq m in 2008,” said Mr Chorley.

Warehouse rental rates had already jumped up to 50 per cent in key industrial areas such as

Welshpool, Kewdale, Osborne Park and Balcatta, and now ranged between $80sq m and $125sq m in the wider metropolitan area.

“To make sure new developments are commercially viable, developers and landlords are now

seeking minimum rents of approximately $200sq m for office and $110sq m for clear span high truss

sprinklered warehouses,” said Mr Chorley.

Supply

The squeeze on Perth’s industrial land supply is set to be eased slightly in 2008, with key developments such as the 1,000ha Meridien Park Industrial Estate in Neerabup and the Phoenix Business Park in Bibra Lake due to release lots to the market. Over the coming five years, some 820ha of subdivided industrial land is expected to hit the market.

Small lot subdivisions, such as the Triangle Industrial Park in Yangebup, have also benefited from strong demand with resale of lots achieving top prices.

The first stage of LandCorp’s Meridien Park, released this month, has been met with overwhelming interest and is expected to sell out quickly, with a high level of owner-occupier enquiry.

On completion, the development – which includes best-practice sustainability measures, high-speed internet access and high-grade security – will rival the industrial precincts of Welshpool and Kewdale for size.

Future pre-commitments at Goodman’s Stockyard Industrial Estate in Hazelmere and land releases from the Phoenix Business Park will also help to alleviate supply problems in the Perth market.

However, Colliers International research indicates underlying demand is unlikely to be satisfied in the foreseeable future.

“The level of enquiry for pre-commitment in the Perth market at the moment is enough to fill an estate like Stockyard three times over,” said Mr Chorley.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 11,000 employees span the world in 293 offices in 61 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Erwin Edlinger
Manager Research & Consultancy
+61 8 9261 6666
+61 8 9261 6688
erwin.edlinger@colliers.com 

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