Briefing Brisbane Industrial July 2018 - pdf.· BRI - Southside BRI - Northside BRI - Trade Coast

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BriefingBrisbane Industrial July 2018

Savills Research Queensland

Highlights After a record 2016, leasing volumes in Brisbane

industrial have softened, resulting in subdued rental growth;

Over 2018, approximately 158,990 square metres of space is due to hit the market, with nearly three-quarters of this space still under construction;

Private investors were the most active purchaser type, accounting for approximately 38% of all reported sales in FY-18, followed closely by Funds and Trusts, jointly accounting for 28.5% of all industrial sales in Brisbane;

Improvements in commodity prices and the positive outlook for exports, has helped stimulate job advertisements for the industrial sector.

Prime Averages (Trade Coast)

Latest 12mo Diff Outlook

Rental N.F. ($/sq m) 133 n/c Incentives (%) 10.0 n/c Yield Market (%) 6.38 -25bps IRR (%) 8.25 -25bps Capital Values ($/sq m) 1,925 n/c

Land Values ($/sq m) 475 n/c

July 2018

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Savills Research | Briefing Notes Brisbane Industrial

Report ContentsExecutive Summary 2Leasing Activity & Demand 3Rents and Developments 5Sales Activity 6Infrastructure & Outlook 8Precinct Map 9Key Indicators 11

Key Contacts 12

Executive Summary

Major project completions in the mining sector have helped to stimulate economic growth in Queensland, with growth in State Final Demand for the 12 month period rebounding above long term averages. Ongoing mining projects in Queensland are likely to see continued positive effects on the Queensland economy and thus spill over into the industrial sector, aiding leasing demand and increase consumer and business sentiment. Indeed, we are already seeing a notable rise in speculative supply in Brisbanes industrial market in 2017, as a result of the improving economic conditions and positive sentiment around tenant demand.

Industrial leasing volumes in Brisbane over the 12 months to June 2018 remained subdued, following a period of record high leasing activity in FY-16 and FY-17, translating to largely stagnant growth in rents. Prime net face rents remained stable over FY-18. The Trade Coast precinct leads the other major industrial areas in terms of net rental levels, with net face rents typically ranging from $115 to $150 per square metre per annum, or an average $133 per square metre.

Looking at transaction activity, private investors were the most dominant purchaser type as a group, accounting for 38% of total industrial assets transacted in Brisbanes industrial market over the 12 months to June 2018. Whilst sales activity over the latest 12 month period has been largely subdued, following record transaction levels in the previous two annual periods, there appears to be a renewal of interest in industrial assets in Brisbane, on the back of positive forward looking indicators; such as record high corporate profits in the mining sector, above average employment growth (especially in engineering jobs) and major project starts in Queensland likely to boost the leasing market and aid largely stagnant rents.

Brisbane Markets Summary - Prime Warehouse

Precincts N.F. Rent ($/sq m) Market Yield (%) IRR (%) Cap. Value ($/sq m) Land Value ($/sq m)

BRI Southside* 118 (n/c) 6.38 (-25 bps) 8.50 (-25 bps) 1,725 (n/c) 298 (n/c)

BRI Northside* 120 (n/c) 6.75 (+13 bps) 8.00 (-50 bps) 1,750 (n/c) 338 (+8.0%)

BRI - Trade Coast* 133 (n/c) 6.38 (-25 bps) 8.25 (-25 bps) 1,925 (n/c) 475 (n/c)

BRI - M1 / Logan Cor.* 113 (n/c) 6.50 (-13 bps) 8.63 (-25 bps) 1,700 (n/c) 263 (n/c)

BRI West* 105 (n/c) 6.63 (-38 bps) 8.63 (-50 bps) 1,525 (n/c) 203 (n/c)

Source: Savills Research

*Savills metrics includes marketable commercial industrial buildings within defined precinct boundaries, generally inclusive of an improved building area of between 1,000 and 20,000 square metres. Land values reflect serviced & benched sites (3,000 - 5,000 sq m).

Associate Director Capital Strategy & Research

Shrabastee Malliksmallik@savills.com.au

For our latest national reports, visit savills.com.au/research

To join Savills Research mailing list, please email research@savills.com.au

http://www.savills.com.au/researchmailto:research%40savills.com.au?subject=

July 2018

savills.com.au/research 3

Savills Research | Briefing Notes Brisbane Industrial

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000 BRI-West BRI-Southside BRI-NorthsideBRI-Trade Coast BRI-Non-Metro

Transport & Logistics -187,106sqm - 52.5%

Wholesale - 77,151sqm - 21.6%

Manuf/Engineering - 45,046sqm- 12.6%

Property & Business Services -16,343sqm - 4.6%

Undisclosed - 8,886sqm - 2.5%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000 Direct - New Direct - ExistingPrelease PrecommitRenewal

Industrial leasing volumes in Brisbane over the 12 months to June 2018 remained subdued, following a period of record high leasing activity over the last three financial years. Savills identified approximately 356,669 square metres of industrial space leased in FY-18 (over 1,000 square metres). This was down 44% on the year prior (645,308 square metres) and down on the 10-year average of 610,000 square metres. The number of leases identified in the 12 months to June 2018 totalled 41. By comparison, a total of 110 transactions were recorded in the 12 months to June 2017.

There was a turnaround in industries active in Brisbanes industrial sector. Whilst the Wholesale and Manufacturing & Engineering sectors are traditionally more dominant in Brisbane, a boost in corporate profits for logistics companies in 2017 has seen them becoming considerably more active. In addition, with major mining project completions in 2017, moving to the export phase has translated to an increase in demand for Transport and Logistics.

The Transport & Logistics sector drove tenant demand for industrial space in Brisbane, accounting for over 50% of total space leased in the 12 months to June 2018. The largest lease of the FY-18 was Coca-Cola Amatils 81,000 square metre sale and leaseback at 220-260 Orchard Road, Richlands in Brisbanes Southside precinct, on a 20 year term.

Tenant demand for industrial space in Brisbane was followed by demand from Wholesale operators, accounting for approximately 22% over the same period. The second largest leasing deal for the 12 months to June 2018 was from Wholesale operator Schweppes / Asahis 18,800 square metre pre-commitment at 14 Seeana Place, Heathwood in Brisbanes South East precinct, also on a 20 year term.

There was a renewal in pre-commitment activity in Brisbane, after subdued pre-lease activity over the recent past. Pre-lease activity accounted for close to 46% of total tenant demand, with most of this pre-lease activity transacted in Brisbanes Trade Coast and Southside precincts, absorbing vacant space and thus driving down total vacancy rates in Brisbanes industrial market.

Limited stock of quality warehousing facilities has meant a drop in leasing activity, however much of the leasing activity has been due to flight to quality with occupiers moving from older and less efficient facilities into modern A-Grade space.

Source: Savills Research

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000 BRI-West BRI-Southside BRI-NorthsideBRI-Trade Coast BRI-Non-Metro

Transport & Logistics -187,106sqm - 52.5%

Wholesale - 77,151sqm - 21.6%

Manuf/Engineering - 45,046sqm- 12.6%

Property & Business Services -16,343sqm - 4.6%

Undisclosed - 8,886sqm - 2.5%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000 Direct - New Direct - ExistingPrelease PrecommitRenewal

Leasing Activity by Lease Type

Source: Savills Research

Leasing Activity by Precinct

Leasing Activity by Industry Type

Source: Savills Research

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000 BRI-West BRI-Southside BRI-NorthsideBRI-Trade Coast BRI-Non-Metro

Transport & Logistics -187,106sqm - 52.5%

Wholesale - 77,151sqm - 21.6%

Manuf/Engineering - 45,046sqm- 12.6%

Property & Business Services -16,343sqm - 4.6%

Undisclosed - 8,886sqm - 2.5%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000 Direct - New Direct - ExistingPrelease PrecommitRenewal

Leasing Activity & Demand

July 2018

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Savills Research | Briefing Notes Brisbane Industrial

Regarded as a lead indicator, logistics job advertisement numbers grew by 19.8% over the 12 months to May-18, the 3rd highest figure nationally. What was notable about Queenslands performance, in comparison to WA and NT, was that Queensland has been consistently posting double digit growth numbers for job advertisements for industrial-based jobs over the last 12 months. A flow-on effect is now likely, with an increase in demand for industrial space in the year to come. This growth in advertisements for the industrial sector points to stronger future demand and may provide th