Industrial property sector on the rebound

Industrial property demand has found a base and is holding up reasonably well while the supply cycle is swiftly drawing to an end, according to Jones Lang LaSalle’s Q2 2009 research statistics.
Jeff Pond, head of industrial services at Jones Lang LaSalle said a growing level of positive sentiment continued to permeate the industrial markets nationally throughout Q2, with enquiry levels for most industrial sectors showing increases over 2008 and stronger than Q109 figures.
The figures show that gross take-up of industrial space was steady at 251,000 sqm in Q2 2009. This was in line with the 262,000 sqm recorded in Q1. The lion’s share of take-up activity was in Sydney (41%) followed by Melbourne (21%) and Brisbane (21%).
“Although tenant demand is down from the peak of 2007 levels, the lack of speculative development activity over the past 18 months has resulted in preventing a huge over-supply of stock, keeping rental values relatively stable in most markets,” said Mr Pond.
“Jones Lang LaSalle Industrial has negotiated a number of significant transactions year to date across both the leasing and sales markets.
“Deal flow for investment property has been good in the sub-$35 million range, with private buyers and syndicates dominant purchasers, continuing the theme set in 2008,” said Mr Pond.
The Q2 2009 national industrial figures show that occupiers are having to lease or purchase existing space to meet their needs due to an inactive pre-lease market.
Nick Crothers, national industrial analyst at Jones Lang LaSalle said, “We are pleased to see businesses committing to large spaces in the Sydney market and bringing down the level of vacant stock. 75% of gross take-up in Sydney was leases to existing space, with the other 25% owner occupiers. There are now far fewer options for 10,000+ sqm users in Sydney’s west.
“As a result we have not seen very large drops in market rent for existing space that may have been expected to eventuate when the economic downturn hit. The balance between supply and demand is keeping rents relatively steady,” said Mr Crothers.
Industrial rents held up reasonably well in Q2 2009. Average prime existing net face rents decreased by -1.8% during the quarter lead by Perth North (-5.9%), Melbourne South East (-3.7%) and South Sydney (-2.3%).
There was 347,000 sqm of new supply completed around the country in Q2 2009, the majority of that in Sydney (35%) and Melbourne (28%). These projects are largely a hangover from deals that were contracted last year or the year before. Another 547,000 sqm of projects are under construction scheduled to be completed this year with 73% pre-committed. Sydney accounts for 49% of this space and Brisbane 25%.
New supply in 2010 is expected to be very weak. Only 247,000 sqm of supply is under construction for 2010 completion, 94% of which is pre-committed.
Total industrial sales transactions of $312.1 million were recorded during the second quarter of 2009 (sale price >$5 million). This compares to $239.1 million during the first quarter. Jeff Pond believes sales volumes will continue to pick up throughout the year, with a number of larger deals expected to go through in the second half of the year.

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