Capital Markets Investment Review 2023

Industrial Capital Markets

Investment Review 2023

The Australian industrial and logistics sector continued to show its strength throughout 2022, despite growing economic uncertainty and a repricing of assets. Investment volumes reached $7.9 billion for the year, which is the second highest annual volume on record.

Capital inflows into the sector were underpinned by the occupier market where vacancy rates have fallen to new lows off the back of record levels of take-up.

For 2023, asset pricing will remain the key theme, however, with rents growing at six times the long-term average, the sector is well placed to weather the uncertainty. Once interest rates and funding costs stabilse,the capital sitting on the sidelines will re-enter the sector and another strong year is anticipated

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1.

Demand for infill assets drives investment volumes to second strongest year on record

$7.9 billion traded in 2022 and was supported by the demand for short WALE infill assets as investors looked to capture the uplift in rents. In 2022, 51% of assets to trade by value stemmed from infill locations and compares to 34% in 2021 and 14% in 2020.

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2.

Strength of the occupier markets underpins investment demand

The strength in the occupier market continued in 2022 and underpinned the sector’s strong performance in 2022, despite challenging conditions. Vacancy rates fell throughout the year and currently average 0.6% nationally while gross take-up exceeded 4.85 million sqm, which set a new record. Prime rents grew by 21.6% on average nationally – over six times the 10-year annual average of 3.5%.

3.

Inflationary pressure leads to yield expansion

After more than a decade of compression, yields entered an expansionary cycle off the back of rising funding costs, with longer WALE assets being harder hit given the inability to capture the strong uplift in rents over the short to medium term. Since the peak in pricing in Q1 2022, prime yields have softened by 85 basis points on average nationally. Based on previous cycles, markets typically adjust to new pricing benchmarks within a 12-18-month window, which suggests some capital will continue to sit on the sidelines until pricing is reset in around mid-2023.