Industrial property in Australia has been one of the most popular investment classes in recent years. However, as alternative investment options gain momentum and office and retail sectors recover, experts anticipate a potential slowdown in the demand for industrial assets.
Nevertheless, Ray White Commercial's Head of Research, Vanessa Rader, said that in the short term, industrial assets are expected to retain their position as a favoured options among the commercial property market due to their strong relative returns.
In 2021, investments in the industrial sector reached their peak, with $32 billion changing hands across the country, accounting for 32.4 per cent of all commercial sales that year. "While low-interest rates and investors' desire to diversify their portfolios fuelled investments in commercial assets, the appeal of industrial properties was evident across all price points,” Ms Rader said.
However, Rader said that while the interest in industrial properties peaked in 2021, the proportion of these investments has gradually decreased to 27.1 per cent in the first three quarters of 2023. Despite the recent decline in total commercial property investments, the industrial sector has already done $9.7 billion in transactional activity for the current year.
Ms Rader stated that investments in industrial assets have been predominantly led by New South Wales (NSW) and Queensland (QLD). During COVID, markets like Western Australia and South Australia experienced increased volumes of investments as many investors sought opportunities in smaller markets with higher potential returns.
However, this trend has recently shifted as investors have reverted to focussing on key growth areas. This change in investment activity has also prompted shifts in the buyer and seller profiles within the industrial sector in 2023.
"Private investors have played a significant role in the industrial space, consistently increasing their holdings, with net acquisitions remaining positive despite accounting for more than half of all sales,” she said. “Moreover, offshore capital and institutional investors have also increased their investments.
She mentioned the most notable movement has come from listed funds and Real Estate Investment Trusts (REITs). “These entities have been reducing their industrial assets, contributing to 21.5 per cent of all sales, with a mere seven per cent of the total sales representing a mismatch in buyer activity,” she said.
As the proportion of industrial investments decreases, investors have started considering other types of commercial assets according to Ms Rader. "Traditional investment classes like office and retail are also witnessing a reduction in investment levels, creating opportunities for investors to explore alternative options,” she said.
Throughout the year, there has been a notable surge in investments in quasi-residential assets, including student accommodations, build-to-rent properties and development sites, capitalising on the growing demand for housing.
Meanwhile, recovering tourism numbers has resulted in increased activity in the hotel sector. "In response to our rapidly changing population demographics, there has been an increased demand for assets like medical facilities, childcare centres, and aged-care facilities,” Ms Rader said.
"Competition for alternative asset classes, especially those linked to our rapidly growing population and changing demographics, may become the next favourite choice for commercial investors in the near future."
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