Industrial market weathers downturn

The Melbourne industrial market has already recorded $101.5 million in investment sales year to date – markedly higher than the $72.9 million in sales recorded for the whole of 2008.

CBRE senior director of Institutional & Corporate Client Services, Shane Robb, said the spike in sales and leasing activity suggested the Melbourne industrial market had potentially bottomed in the March quarter, with activity expected to continue into the second half.

“The market is now showing clear signs of having turned the corner,” Mr Robb said.

Similarly, sales in Sydney’s industrial market have also increased, recording $256.5 million in sales in the first half of the year.

After a lacklustre 2008, when the global financial crisis weighed heavily on investor confidence, private investors, syndicates and owner occupiers have returned to the market – lured by a significant re-pricing of industrial assets, which have fallen in value by an average of 21.1 per cent.

Mr Robb said industrial assets priced over $10 million were being overlooked at the beginning of the year in favour of alternative property asset classes such as office and retail.

At the same time, industrial vacancy rates were pushing 4.3 per cent and increasing, not by virtue of new construction but as a result of a number of occupiers going out of business.

The land market was also constrained, with banks reluctant to extend finance to this sector of the market.

“Fast forward three months and the picture looks completely different, suggesting March 2009 may go down as the bottom of the current market cycle,” Mr Robb said.

Investors set sights on commercial targets

As the commercial real estate market in Australia stabilises, there are potential benefits for investors who “engage the bear”.

There has already been a significant shift in the Sydney CBD investment market – and while in many instances there is still a 5 per cent to 10 per cent gap between vendor and buyer expectations, which is preventing some transactions from occurring, a shift is now occurring.

CBRE is forecasting that Sydney CBD office rents will consolidate this year before starting to pick up in 2010. From there, the outlook is for above average growth in 2011 and a rent spike in the order of 12 per cent in 2012.

At the same time we have revised our vacancy outlook for the Sydney CBD down from over 10 per cent next year to a peak of 9.2 per cent.

The lack of overbuilding will help support the market. While net absorption is likely to be very negative this year – to the tune of 180,000 square metres – and while the finance industry will remain the key driver of occupational performance, absorption is forecast to move back into positive territory in 2010 and will continue to trend up through 2011 and 2012.

CBRE Institutional Investment Properties regional director Rob Sewell said the shift in the Sydney market was highlighted by the interest shown in the receivership sale of the Australian Securities Exchange headquarters at 20 Bridge Street.

With the receiver perceived to be a genuine vendor, the property attracted multiple offers from European, Asian and local parties. The bidding highlighted the fact that there is potentially $1.5 billion in debt and equity available for prime Sydney CBD opportunities.