Adelaide Industrial Market

Summer 2014
www.m3property.com.au
Adelaide Industrial Market
MARKET TRENDS
•Positive signs for S.A.
economy despite major setbacks.
The South Australian economy has experienced significant setbacks in the past year, including the Olympic Dam postponement
and the announced closure of the General Motors Holden Plant,
however there are positive signs ahead.
While the South Australian economy
has experienced significant set-backs in
the last year, including the Olympic
Dam postponement and the announced
closure of the General Motors Holden
Plant, there are positive signs ahead
including the move of retail giants Aldi
and Costco into Adelaide.
•Investor confidence
remains subdued.
•New industrial supply
driven by transport and
logistics sectors.
Investor confidence remains subdued,
however, the fall in the Australian dollar
and the continued relatively low interest
rate environment may yet provide some
positive impetus to the South Australian
economy and therefore the investment
market.
Commitment from the Coalition on
November 7 2014 to build 12 new
submarines at the Osborne facility in
Adelaide has ensured the replacement
of the current submarine fleet will
centre
around
South
Australian
shipyards. This is an encouraging sign
for the State’s economy.
IN THIS REPORT
Market Overview
1
Key Influences
2
Demand and Supply
4
Rental market
5
Sub markets
6
Investment Market
8
Key Sales
11
Outlook
13
New industrial supply has been largely
driven by the transport and logistics
sectors
mostly
through
precommitments. Restrictive lending has
kept new supply levels low.
Netley Commercial Park sold in
May 2014 for $30.25 Million.
KEY INDICATORS – BY SUB MARKET
Net rents ($/m2)
Incentives (%)
Market yield (%)
Land values ($/m2)
Prime
Secondary
Prime
Secondary
Prime
Secondary
1-2ha lots
Inner West
110-160
50-100
0-15
10-20
6.75-8.00
7.50-9.00
300-450
North
100-130
65-90
10-20
10-20
7.75-8.50
8.50-9.50
130-275
Outer North
85-115
40-65
10-20
10-20
8.25-9.25
9.00-12.00
50-100
East
110-160
65-110
0-5
0-5
6.50-7.50
7.50-8.25
600-1,000
Inner South
85-140
50-100
5-15
10-15
7.25-8.25
7.75-10.00
380-500
Outer South
60-85
40-75
10-15
10-20
9.00-10.00
9.75-12.00
75-140
Source: m3property (October 2014).
KEY INFLUENCES
KEY INFUENCES
•
The industrial market has long been associated with distribution as a key driver and
while the business requirements in this area have changed with time, the prime
industrial localities have become increasingly associated with major road
infrastructure and sites capable of accommodating large facilities.
•
The Adelaide industrial market consists of a wide range of property types including
warehousing and manufacturing facilities in the outer north, office/warehouses
largely centred around South Road and isolated pockets of industrial estates
comprising smaller office / warehouses in Adelaide’s East.
ECONOMIC GROWTH
Inflation expected to remain within
RBA’s target band of 2%-3%
•
The Australian economy continues to show modest growth and this is expected to be
below trend over the year ahead. Resources sector investment is declining
appreciably and public spending is expected to be subdued, however, private
demand is expanding. Inflation is expected to remain within the RBA’s target band
of 2%-3%.
•
Underlying inflation was 0.1% for the September quarter and 2.1% for the year to
September. Annual headline inflation was slightly higher at 2.3% for the year.
KEY SECTORAL CHANGES
Demand moves to knowledge based
industries and logistics services.
www.m3property.com.au
•
Australia has seen a structural change in the industry types demanding industrial
space. Demand continues to move away from traditional manufacturing, and
towards knowledge based industries and logistics services.
•
Retail trade is the main driver of the logistics sector in Australia, contributing 32.5%
of revenue according to IbisWorld (September 2014). Retail has gone through major
changes over the past few years due to increased take-up of e-retailing, the high
Australian dollar making imports cheaper and retailers trying to deal with lower
margins. This led to inventory reduction and retailers improving or creating on-line
services to compete.
•
The growth of online retailing has led to growth in demand for warehouses to store
and distribute goods from. This demand is largely from overseas retailers who are
aiming to reduce cost of delivery and delivery times for goods.
•
South Australia’s retail trade was relatively unchanged (seasonally adjusted) in
September 2014, following a drop in August (ABS, October 2014). In the year to
September 2014, retail turnover rose by 3.1% in S.A.
•
The second largest contributor to logistics revenue is the manufacturing sector.
Although it has been on the decline in Australia over the past 20 years it still
contributes around 6.30% of gross value add to GDP in the year to September 2014,
but is down from 11.0% in 1990. This is due to the overall trend towards off-shoring
to countries with cheaper labour and other costs and over the past few years due to
the high Australian dollar. The decline is likely to be offset by growth in the logistics
sector from the corresponding importation of manufactured goods.
Comm3ntary Summer 2014 | P2
KEY INFLUENCES
INFRASTRUCTURE
South Road Superway completed in
March 2014.
Southern Expressway duplication
completed mid-2014.
www.m3property.com.au
•
Adelaide’s north-south corridor is a series of linking thoroughfares, consisting
primarily of the Southern Expressway duplication, South Road Superway, North
Connector, and the Northern Expressway. It will bring greater ease of access to the
growing industrial precincts of the outer-north and outer-south.
•
The next section of the North-South Corridor due to be delivered will be a
3.7 kilometre section of South Road between Torrens Road and the River Torrens.
The project is due for completion by the end of 2018.
•
Completed earlier this year, the South Road Superway provides a 4.8 kilometre,
multi-lane transport corridor from the Port River Expressway to Regency Road, a
2.8 kilometre elevated roadway, passing over Grand Junction Road. It will enhance
the fluency of industrial traffic in areas such as Port Adelaide, as well as upgrading
and improving the link between Adelaide’s north and south.
•
The $842 million Southern Expressway duplication includes an 18.5 kilometre multilane, two-way expressway between Bedford Park and Old Noarlunga. It is critical in
developing Adelaide’s North-South corridor, and will provide an economic boost to
outer-south industrial markets, such as Seaford and Lonsdale. It was completed in
August this year.
•
Port Bonython, approximately 35 kilometres north-west of Whyalla on the Eyre
Peninsula, was granted major project status for the construction of a deepwater port
capable of accommodating 'Capesize' ships. The development would provide a
gateway for transportation to the State’s mining facilities in the far-north.
•
A number of projects aimed at improving the State’s rail infrastructure including the
Seaford rail extension (completed February 2014) and major upgrade to the
Goodwood Junction (completed October 2014) will add to demand in the short term.
Comm3ntary Summer 2014 | P3
SUPPLY AND DEMAND
SUPPLY
Industrial development over 2014
was close to one third of the ten year
average.
•
Supply of industrial development has been relatively steady by historical standards
over the past five year period. New development was largely driven by the transport
and logistics sector, underpinned by either owner or tenant pre-commitment.
•
The planned closure of the General Motors Holden Plant at Elizabeth, scheduled for
2017, creates a unique opportunity for development in the outer north, with a large
parcel of industrial land within an established area being ripe for re-development.
600
500
Number of
approvals
Factories
Agriculture & aquaculture blg
Source: m3property and ABS (October 2014).
400
300
200
100
0
Number of building approvals
Value of building approvals
($millions)
SA Industrial Building Approvals
450
400
350
300
250
200
150
100
50
0
Warehouses
Other industrial
DEMAND
Signs of confidence returning to
industrial market in 2014.
www.m3property.com.au
•
There are signs of some confidence returning to the industrial market with recorded
increases in sales activity and anecdotal evidence of increased tenant activity, albeit
primarily witnessed in prime industrial precincts.
•
There is evidence of minor rental growth in tightly held precincts, together with a
moderate easing in face rents and incentives required to entice tenants where
oversupply is reported. It is anticipated that this situation will likely continue for the
foreseeable future, pending any major change in macro economic circumstances.
•
The uncertainty in global markets continues to affect the local and national
manufacturing and transport sectors, with risk-averse behaviour resulting in
occupants choosing to remain in their existing premises rather than seeking
alternative accommodation. A recovery in business and consumer confidence is
likely to stimulate leasing demand, and subsequently, investor activity, but is not
expected in the short term.
•
Demand for preferred traditional precincts such as Regency Park and Wingfield in
the north is expected to remain steady, however outer areas including Lonsdale and
Seaford in the south and Edinburgh, Direk and Burton in the north are likely to
remain soft throughout 2015.
•
The move of retail giants Aldi and Costco to Adelaide is evidence of this, with Aldi
gaining council approval to start construction on its 30,000 square metre warehouse
and distribution facility at Regency Park. The new facility will support plans to build a
store network of up to 50 stores.
•
Costco recently opened its first S.A. store in in November, leasing more than 5.0
hectares of land under a 50-year ground lease arrangement at Kilburn. Plans for
two more Costco centres are currently in the pipeline for S.A. within the next few
years.
Comm3ntary Summer 2014 | P4
RENTAL MARKET
RENTAL MARKET
Prime rents largely remain stable.
•
Reflecting patchy leasing demand generally, prime net rents have remained
relatively stable since circa 2010. Where growth has occurred, it predominantly
reflects inflation or agreed rent review provisions in existing lease covenants.
Adelaide prime net rents
Prime net face rents ($/m 2)
$160
$140
$120
$100
$80
$60
$40
$20
$-
Inner West
Outer North
Inner South
North
East
Outer South
m3property Research
Prime net rents for larger space
ranged from $60-$115 per square
metre as at December 2014.
•
Prime net rent levels for larger space modules (i.e. in excess of 1,000m²) currently
range from $60 per square metre in the outer south to $115 per square metre in the
preferred northern and western precincts, albeit noting evidence for certain
properties lying beyond this range.
•
Secondary net face rents have also experienced slight changes over the past six
months typically ranging between $40 and $90 per square metre of lettable area.
Secondary net rents ranged
between $40-$90 per square metre.
Prime net effective rents ($/m 2)
Adelaide prime net effective rents
$120
$100
$80
$60
$40
$20
Adelaide
Australia average
$-
m3property Research
LEASING ACTIVITY
Property
8-10 Manton Street, Hindmarsh
9 Maxwell Road, Pooraka
16-20 Johansson Road, Wingfield
29-51 Bedford Street, Port Adelaide
www.m3property.com.au
Rent ($/m2)
Tenant
GLA (m2)
Comm Date
HaggleCo
1,608
Aug -14
$68
N/A
2,174
Jul – 14
$57
CMA Eco Cycle
2,200
Jul-14
$70
Weng Fu
13,761
Jan-14
$55
Comm3ntary Summer 2014 | P5
SUB MARKETS
INNER WEST
Prime inner west rents ranged from
$110-$160 per square metre.
Prime eastern rents ranged from
$110-$160 per square metre.
•
Rents were stable over the past six months, ranging from $110 to $160 per square
metre for prime, and $50 to $100 per square metre for secondary stock at October
2014. Incentives were stable to increasing, ranging from 0% to 15% for prime, and
10% to 20% for secondary stock.
EAST
•
Rents were stable, ranging from $110 to $160 per square metre for prime, and $65
to $110 per square metre for secondary stock over the six months to October 2014.
Incentives ranged from 0% to 5% for both prime and secondary stock.
•
This submarket consists of isolated pockets of industrial estates, namely Stepney,
Glynde, Newton, and Holden Hill, typically comprising smaller office/warehouses,
and attracting a predominantly owner-occupier tenants profile.
OUTER NORTH
Prime outer north rents ranged from
$85-$115 per square metre.
•
Rents were stable, ranging from $85 to $115 per square metre for prime, and $40 to
$65 per square metre for secondary stock over the six months to October 2014.
Incentives ranged from 10% to 20% for both prime and secondary stock.
•
The announced closure of the General Motors Holden Plant at Elizabeth scheduled
for 2017 is a cause of concern for the outer-north precinct, however it also creates
an opportunity for other industrial users after 2017 with a large parcel of industrial
land being ripe for redevelopment. The outer-north is expected to become an
increasingly desirable location for tenants upon the completion of the mooted northsouth corridor, and therefore, has a major part to play in the future of Adelaide’s
industrial market.
Prime northern rents ranged from
$100-$130 per square metre.
NORTH
www.m3property.com.au
•
Rents were stable, ranging from $100 to $130 per square metre for prime, and $65
to $90 per square metre for secondary stock. Incentives ranged from 10% to 20% for
both prime and secondary stock over the six months to October 2014.
•
Stock in the submarket is predominantly larger warehousing and manufacturing
facilities, accessed via intermodal networks, such as the Port River Expressway,
Flinders Ports, and the Outer Harbour rail network.
Comm3ntary Summer 2014 | P6
SUB MARKETS
INNER SOUTH
Prime inner south rents range from
$85-$140 per square metre.
Prime outer south rents range from
$60-$85 per square metre.
www.m3property.com.au
•
Rents were stable, ranging from $85 to $140 per square metre for prime, and $50 to
$100 per square metre for secondary stock over the six months to October 2014.
Incentives were stable, ranging from approximately 5% to 15% for prime, and 15% to
15% for secondary stock.
•
This submarket consists of smaller, older-style office/warehouses, largely centred
around South Road, attracting a predominantly owner-occupier profile. North
Plympton and Somerton Park are isolated industrial estates, which also fall in the
inner-south submarket.
OUTER SOUTH
•
Rents were stable, ranging from $60 to $85 per square metre for prime, and $40 to
$75 per square metre for secondary stock. Incentives were stable, ranging from
approximately 10% to 15% for prime, and 10% to 20% for secondary stock over the
six months to October 2014.
•
This submarket represents the cheapest industrial rents in metropolitan Adelaide,
due to its distance from the CBD and major arterial networks. The completion of the
Southern Expressway duplication should provide an economic boost for industrial
estates, such as Seaford and Lonsdale.
Comm3ntary Summer 2014 | P7
INVESTMENT MARKET
INVESTMENT MARKET
Few active market participants.
•
The low interest rate environment currently means that sales volumes are likely
to continue to rise in South Australia as investors are able to more readily
access funds and enter into the market. However, according to RP Data senior
research analyst Cameron Kusher, South Australia’s weaker economic
conditions relative to the other States means that investors outside of S.A. are
hesitant to invest, particularly for medium to larger sized assets, “I don’t see
enough competition or confidence to result in any significant acceleration in
volume increases”.
•
Due to historically depressed market conditions and pricing expectations,
owners have a preference towards holding assets.
SA industrial sales, by purchaser type
Sales ($millions)
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$2006 2007
A-REIT
Government
Syndicate
2008 2009 2010 2011 2012 2013 2014
Corporation
Developer
Owner Occupier
Private Investor
Undisclosed
Unlisted Fund
Source: m3property Research * Sales over $5 million (up to end October 2014)
•
Although there was a modest uplift in the number of transactions reported yearon-year in 2014, particularly for lower priced (sub-$1 million) assets in prime
locations, prices appear largely consistent with that reported throughout 2013.
SA Sales by purchaser type - 2013
$5m to $20m
Government
23%
Private
Investor
25%
Undisclosed
15%
A-Reit
14%
Corporation
15%
Developer
8%
Source: m3property Research
www.m3property.com.au
Comm3ntary Summer 2014 | P8
INVESTMENT MARKET
YIELDS
Market yields generally remain
unchanged for investment grade
assets.
•
Market yield ranges generally remain unchanged for investment grade assets,
albeit with a slight firming through 2014 based on the limited transactions that
have occurred.
•
Prime market yields currently range between 8.25% and 9.25%, with secondary
yields between 9.25% and 12.00% in the outer metro precincts as at October
2014.
•
Prime grade yields in the Inner North are closer to 8.00% whilst the South shows
an average of 9.25% as at October 2014.
•
Variances beyond these ranges are more particularly attributable to properties of
smaller proportions, those influenced by owner occupier motivations, and/or
those with re-development potential.
Adelaide industrial yields
14.00%
12.00%
Yields (%)
10.00%
8.00%
6.00%
4.00%
2.00%
Adelaide
National
0.00%
m3property Research
MAJOR RECENT PROPERTY SALES
Qtr
Price
(millions)
Market Yield
%
GLA
$/m2
Site
$/m²
103-109 West Avenue, Edinburgh
Q3/14
14.75
7.50
5,980
2,467
29-31 Lavinia Street, Athol Park
Q3/14
2.09
VP
3,228
589
53 Woodforde Road, Magill
Q2/14
3.80
8.29
1,251
3,038
113 Ledger Road, Beverley
Q2/14
7.33
9.70
8,744
838
5-17 Taminga Street, Regency Park
Q2/14
9.00
VP
17,150
525
Netley Commercial Park
Q2/14
30.25
7.92
34,260
883
1 Williams Circuit, Pooraka
Q2/14
5.83
8.99
4,385
1,330
Lot 31 Grand Trunkway, Gillman
Q4/13
17.58
8.47
31,589
556
190 Cormack Road, Wingfield
Q4/13
2.63
8.67
2,101
1,249
519 Cross Keys Road, Cavan
Q4/13
7.10
9.35
8,063
881
Property Sales
Source: m3property (Sales to October 2014).
www.m3property.com.au
Comm3ntary Summer 2014 | P9
INVESTMENT MARKET
LAND VALUES
Land values have stabilised in the
last two years.
•
Land values vary greatly depending on location, and are currently ranging from
$75 per square metre in the outer-south, to $1,000 per square metre in the east,
where land is in short supply.
•
The most significant amount of land supply is within the outer north region, including
Lefevre Peninsula and Edinburgh which has been set aside for significant industrial
development in the 30 year plan for Greater Adelaide.
1-2 ha serviced lots ($/m2)
Adelaide land values (1-2 ha lots)
$450
$400
$350
$300
$250
$200
$150
$100
Adelaide
$50
Australia
$-
m3property Research
MAJOR RECENT LAND SALES
Qtr
Price (millions)
Area (m2)
$/m2
Lot 11 Port Wakefield Road, Gepps
Cross
Q2/14
$2.80
20,000
$140
32-38 Kaurna Avenue, Edinburgh
Parks
Q2/14
$1.38
21,790
$63
Gallipoli Drive, Regency Park
Q1/14
$14.40
81,450
$177
139 Railway Terrace, Mile End South
Q1/14
$1.49
2,250
$662
72-78 Stanbel Road, Salisbury Plain
Q4/13
2.00
20,200
$99
155-161 Cormack Road, Wingfield
Q4/13
$2.33
7,439
$313
Land Sales
Source: m3property (Sales to October 2014).
www.m3property.com.au
Comm3ntary Summer 2014 | P10
KEY SALES
m3property analysis of Netley
Commercial Park.
m3property undertook a valuation of 300 Richmond Road, Netley for pre-sale
consultancy advice purposes. Analysis of the property revealed:
300 Richmond Road, Netley (Netley Commercial Park)
www.m3property.com.au
•
Sale Price:
$30,250,000
•
Sale Date:
May 2014
•
Market Yield:
7.92%
•
GLA (per square metre):
$1,209
Comm3ntary Summer 2014 | P11
KEY SALES
m3property analysis of
m3property undertook a valuation of 53 Woodforde Road, Magill S.A. Analysis of the
property revealed:
53 Woodforde Road, Magill.
53 Woodforde Road, Magill
www.m3property.com.au
•
Sale Price:
$3,800,000
•
Sale Date:
June 2014
•
Market Yield:
8.29%
•
GLA (per square metre):
$3,038
Comm3ntary Summer 2014 | P12
m3property
m3property Research
Research
For more information please
contact:
Research Contacts
www.m3property.com.au
Tom Rodger
P 08 7099 1800
OUTLOOK
M 0430 292 845
The outlook for the Adelaide industrial market is expected to remain
stable throughout the first half of 2015, with prime and secondary rents
unlikely to experience considerable change.
[email protected]
Key Valuation Contacts
Neil Bradford
Adelaide industrial yields forecast
P 08 7099 1800
M 0412 100 874
10.00%
[email protected]
9.00%
Yields (%)
8.00%
Simon Hickin
P 08 7099 1800
7.00%
M 0401 773 814
6.00%
5.00%
[email protected]
Prime
Secondary
4.00%
Definitions
m3property Research
The
South
Australian
economy
has
experienced significant set-backs in the last
year,
including
the
Olympic
Dam
postponement and the announced closure of
the General Motors Holden Plant.
However, there are positive signs ahead,
including the move of retail giants, Aldi and
Costco, into the Adelaide market and the
commitment from the Federal government to
build 12 new submarines at the construction
and maintenance facilities at Osborne, northwest of the Adelaide CBD.
With the South Road Superway and the
Southern Expressway now complete the next
section of the North-South Corridor due to be
delivered will be a 3.7 kilometre section of
South Road between Torrens Road and the
River Torrens. The project is due for
completion by the end of 2018.
It is considered that prime and secondary
rents are likely to be stable moving into the
first half of 2015, with the primary concern
likely to be the ability to attract and retain
tenants given the reduced number of
participants presently active in the market.
[email protected]
OFFICES
Adelaide
Brisbane
Melbourne
m3p&e
Level 3
44 Waymouth St
Adelaide
South Australia 5000
T 61 (8) 7099 1800
F 61 (8) 7099 1850
Level 2
15 James St
Fortitude Valley
QLD 4006
T 61 (7) 3620 7900
F 61 (7) 3620 7999
Level 5
114 William St
Melbourne
Victoria 3000
T 61 (3) 9605 1000
F 61 (3) 9670 1658
Level 5
114 William St
Melbourne
Victoria 3000
T 61 (3) 9605 1000
F 61 (3) 9670 1658
Perth
Sydney
Unit 2, 168 Stirling Hwy
Nedlands
Western Australia 6151
T 61 (8) 6500 3600
F 61 (8) 6500 3698
Level 14
1 Castlereagh St
Sydney
New South Wales 2000
T 61 (2) 8234 8100
F 61 (2) 9232 5144
Disclaimer
This report has been derived, in part, from sources other than
m3property. In passing on this information, m3property makes no
representation that any information or assumption contained in this
material is accurate or complete.
To the extent that this material contains any statement as to the
future, it is simply an estimate or opinion based on information
currently available to m3property and contains assumptions which
may be incorrect. m3property makes no representation that any
such statements are, or will be, accurate.
Submarket
Suburbs include:
Inner West
Beverley
Thebarton
Adelaide Airport
Hindmarsh
Definitions
North
Edinburgh
Burton
Salisbury
Direk
Penfield
North West
Regency Park
Wingfield
Port Adelaide
Gillman
Dry Creek
North
Lonsdale
Seaford
North West
Edwardstown
Plympton