Fewer property portfolios containing Australia’s industrial and logistics sector are expected to hit the market this year. With such a limited supply, the fight to own high-value industrial property is expected to intensify, exacerbated by institutional investors’ determination to expand their ownership.
With just two transactions, the Blackstone Group LP became the fifth-largest industrial property owner in Australia in 2016. Other groups—namely Mapletree, Cache, and Ascendas—also intensified their acquisitions last year. AMP surprised many pundits when it purchased an industrial property portfolio worth $250 million from JP Morgan.
Considering the limited stock available this year, investors who want to expand their holdings in industrial property need to focus on acquiring land for developing their product. They should also look to corporate companies for potential sale and leaseback programs, or examine the takeovers of property funds.
“Never before has demand for Australian industrial investment property been so great, yet supply so limited,” said Joshua Charles, managing director of One Commercial. “Over the past decade groups such as Goodman, Dexus and Frasers [formerly Australand] have led the industrial development charge, with much of that end product spun off for sale shortly after. Recently, though, we have seen groups not normally associated with industrial development buying their own large parcels in order to create product to develop and hold.”
Charles believes there should be more sale and leaseback activity, but many corporations don’t understand the true value of their assets.
“If more corporations knew the true value of their industrial property holdings in today's market we would definitely be seeing increased sale and leaseback activity,” he said. “Many businesses keep their property at conservative levels on their books and ultimately management takes these numbers as gospel.”
The reality of their properties’ value is often very surprising to non-property businesses, specifically what REITs would be willing to pay for sites based on five- and 10-year leasebacks in today’s market.
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