CAPITAL MARKETS INVESTMENT REVIEW · 2018-08-20 · This year’s Capital Markets Industrial Investment Review will highlight the key market transactions and trends recorded over

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CAPITAL MARKETS INVESTMENT REVIEW

2017/18 | ANZ

INDUSTRIAL INVESTMENT REVIEW | ANZ – 2017/18 A CAPITAL MARKETS PUBLICATION

Page 2Introduction Key Findings Major Transaction OverviewFinancial Year 2017/18 in Review NZ Investment Market The eCommerce Growth Potential Investment Outlook & Forecast Indicators Detailed Transaction List Team/Authors

Introduction

Over the financial year ending 2018 (FYE2018) approximately $4.5 billion in investment sales occurred nationally, with the concentration of activity continuing to occur across the Eastern Seaboard states.

We are currently at a transitional stage of the industrial asset class, brought about by technology as consumers’ demand and expectations continue to evolve. Industrial logistics will have to continue to advance to meet and cater for changing consumer behaviour. This, in turn, is providing the end user access to an extraordinarily broad range of goods within a short time-frame.

From both a domestic and global context, demand for industrial and logistics is being fuelled by the growth in eCommerce. Key players are positioning themselves to benefit from the eCommerce boom that is projected to occur in Australia, which has evidently transpired in the more established markets such as the USA. Institutional investors are choosing to increase their exposure in the evolving industrial sector and build their industrial investment portfolios.

Cross-border investments have continued to be sourced from the USA, Singapore and China, and it is important to note that many domestic acquisitions are also being funded by offshore capital. That being said, offshore buyers are being outbid by local players who have a renewed appetite to invest in the industrial property market. Despite the continued downward pressure on transaction yields, due to the weight of capital and lack of supply entering the market, Australia’s returns remain attractive in a global context.

With the growth in global capital chasing eCommerce solutions, coupled with the Government’s (both National and State level) significant investment in new infrastructure projects and strategies, the industrial asset class has benefitted considerably. Land values have experienced record-breaking growth, and the upward pressure on rents is beginning to take place.

TRANSITIONAL STAGE

INVESTMENT SALES APPROX

$4.5bnMajority in Eastern Seaboard states

This year’s Capital Markets Industrial Investment Review will highlight the key market transactions and trends recorded over the financial year, key statistics effecting the industrial property sector, the eCommerce growth potential in Australia with respect to the global arena, and our outlook on the year ahead.

We look forward to assisting you with your Industrial and Logistics requirement.



Key Findings 8

Tran

sact

ion

Volu

me

($ B

illion

s)

Aver

age

Cap

Rate

(%)6

4

008/09

Source: Colliers Research.

NSW

09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18

2

10

8

6

4

0

2

VIC QLD WA SA ACT OTHER

Average Initial Yield (Prime Grade) Average Initial Yield (Secondary Grade)

Transaction Volumes and Average Cap Rate

Australia’s industrial property is the most in demand asset class – highly sought after by domestic and global players.

Over the FYE2018 around $4.5 billion in investment sales was recorded (for transactions $5 million and over). The volume of sales over this period was concentrated within the Eastern Seaboard states, accounting for around 86 per cent (or $3.9 billion) of total national sales. The availability of assets on the market continues to diminish, and this is reflected in the lower volume of sales compared to the last three financial years.

Investment Sales PurchasesFYE2018

DOMESTIC OFFSHORE UNDISCLOSED

11%

23%

66%

The share of offshore property investments within the industrial market has made up around 23 per cent of total investment sales for the FYE2018. Most of the offshore investments has been made by the USA, followed by Singapore, China and New Zealand.

The continued demand for prime and secondary grade assets resulted in downward pressure on transaction yields. The average national yield for prime and secondary grade assets have compressed, averaging 6.69 per cent and 7.83 per cent, respectively (as at Q2 2018). While the market is coming to terms with lower yields, Australia remains relatively attractive in a global context.

OFFSHORE INVESTMENT

Global Yieldsby City December 2017

4.5%

5.2%

6.1%

VANCOUVER

5.0%

5.9%

CHICAGO

LOS ANGELES

ORANGE COUNTY

DALLAS

7.0%HOUSTON

5.5%TORONTO

5.8%AUCKLAND

6.4%

5.6%

BRISBANE

SYDNEY

6.2%MELBOURNE

3.6%

3.9%SINGAPORE

HONG KONG

6.0%SHANGHAI

4.6%5.1%TOKYO

BEIJING4.7%

4.3%LONDON

FRANKFURT

4.7%MUNICH

Note: London reflects Greater London and excludes Heathrow.Source: Colliers Research.

6.69%7.83%average national prime yield

average national secondary yield



6.0 (%) Real GDP Change

5.0

4.0

3.0

0

(1.0)

(2.0)

(3.0)

2.0

1.0

Australia’s major trading partners

08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19

OECD World Australia

Real GDP GrowthHistoric and Forecast

Australia’s economy has achieved long term economic expansion, with 26 years of unbroken economic prosperity. The strength of the economy is underpinned by solid growth in the global economy, due to the increase in global industrial production and trade – particularly benefiting the Asian region, as well as the positive spillovers from increased investment in public infrastructure expenditure and rise in business sentiment (both global and domestic).

Key Findings (cont.)

Australia’s Total Export and Import Activityby Value (Direction of Trade in USD Billions) in 2017

CHINA$129bn

JAPAN$51bn

USA $34bn

KOREA $25bn

MALAYSIA $13bn

SINGAPORE $12bn

THAILAND $12bn

GERMANY $11bn

HONG KONG $9bn

UK $10bn

INDIA $16bn

NEW ZEALAND $13bn

Note: Direction of Trade Statistics presents the value of merchandise exports and imports disaggregated according to a country’s primary trading partners. Imports are reported on a cost, insurance and freight basis and exports are reported on a free on board basis.

Source: IMF/Colliers Research.

A low interest rate environment and strong rates of population growth continues to support the Australian economy.

%



A relatively low Australian dollar, coupled with public infrastructure investment and solid growth in non-mining business investment, has boosted demand in the Manufacturing sector.


1.15

AUD$

1.05

1.10

0.95

1.00

0.65

0.70

0.75

0.80

Jul 2011

Source: RBA / Colliers Research

Jan 2012

Jul 2012

Jan 2013

Jul 2013

Jan 2014

Jul 2014

Jan 2015

Jul 2015

Jan 2016

Jul 2016

Jan 2017

Jul 2017

Jan 2018

0.85

0.90

AUD/USD Exchange Rate

45,000 – $ Millions Year on Year Growth 10.0%

35

405.0

0.0

(5.0)

(10.0)

(15.0)

25

30

0

5

10

Note: Data as at March 2018. Source: ABS / Colliers Research.

15

20

GDP – Industry Contribution and Growth

Industry Contribution to GDP Industry Growth % gain Y to Y

Agric

ultu

re

Min

ing

6.4%

Man

ufac

turin

g

Util

ities

Cons

truc

tion

Who

lesa

le tr

ade

Reta

il tra

de

Acco

m

Tran

spor

t

Info

med

ia

Fins

& In

s

Rent

al a

nd R

eal E

stat

e

Prof

essi

onal

and

sci

ence

s

Adm

in

Publ

ic a

dmin

Educ

atio

n

Hea

lth

Art

s

Oth

er

Dw

ellin

g

TOP 3 INDUSTRY GROWTH SECTORS (YOY)

3. Administrative and Support Service

2. Manufacturing

1. Health

Note: TEU stands for Twenty-Foot Equivalent Unit and includes full and empty containers. All �gures in millions.

Port Container Movements(TEUs)

2017 2018 Growth

0

1

2

3 million

SYDNEY

2.43 2.60

6.9%

0

1

2

3 million

MELBOURNE

2.70 2.78

2.9%

0

1

2

3 million

BRISBANE

1.26 1.33

5.6%




AUSTRALIA’S LOGISTIC PERFORMANCE INDEX SCORECARD (OUT OF 5)

3.54CUSTOMS

Efficiency of clearance process

3.82INFRASTRUCTURE

Quality of trade and transport related

infrastructure

3.63INTERNATIONAL

SHIPMENTS

Ease of arranging competitively priced

shipments

3.87LOGISTICS

COMPLIANCE

Competence and quality of logistics

services

4.04TIMELINESS

Shipments reaching destination within the scheduled/expected

delivery time

3.87TRACK

AND TRACE

Ability to track and trace consignments



July 2017 August 2017 September 2017 October 2017 November 2017 December 2017

Financial Year 2017/18 in Review

First stage of WestConnex (M4 widening) opens

Amazon’s first fulfillment centre (24,387 sqm) committed (leased) in Melbourne’s South East (Dandenong South) - a former Bunnings DC, owned by Pellicano

The Waterview Tunnel in New Zealand opens – improving links between the South Western and North Western Motorways

NSW Government announces plans to turn Western Sydney Airport into an ‘aerotropolis’ – i.e. a metropolitan sub-region where infrastructure, land use, and economy are centred around the airport

Qube’s Moorebank Logistics Park (Sydney) secures first occupier

10%Qube’s Moorebank Logistics Park (Sydney) secures first occupier (80,000 sqm, or 10 per cent of total warehouse capacity) over a 10-year lease deal, developing 37,860 sqm of warehousing for Target Australia (i.e. Wesfarmers) by 2019

21%increase in Sydney’s industrial land values over the calendar year

40%decrease in industrial investment volumes. Total 2017 investment volumes were below the previous calendar year, with an decrease of 40 per cent on 2016

480haThe Victorian Government officially releases the draft framework for the Fisherman’s Bend precinct development, spanning 480 hectares; more than twice the size of the Melbourne CBD

20year planThe Greater Sydney Commission reveals their 20-year plan for a sustainable future as Sydney continues to grow. The draft plan is designed to respond to Sydney’s expected eight million residents by 2056 by drawing a roadmap to achieve 725,000 new dwellings and generate 817,000 new jobs

$57.75mAuckland-based property syndicator purchases the Tait Communications Campus in Christchurch (Burnside) for $57.75 million

Amazon’s first fulfillment centre in Melbourne’s Dandenong South commences operations

500First Amazon Marketplace Seller Summit in Sydney – Amazon revealed 500 Australian business already signed on to its local platform

Amazon launches in Australia

$157mCharter Hall purchases Coca-Cola Amatil Campus in QLD (Richlands) for $157 million, reflecting a record initial yield of 5.19 per cent – the largest single industrial asset sold in QLD

7yearsMiele secures 7-year lease deal at Mirvac’s Calibre in Sydney’s Outer West (Eastern Creek)

$3.5bnGoodman announces use of $3.5 billion of asset sales to develop highly-automated logistic centres



8Microsoft announces Sydney as one of 8 locations in the world to host its intensive program for start-ups (Microsoft ScaleUp)

$33mGoodman Group lodges proposal for $33 million International Head Quarter at an industrial site in Sydney’s Inner South (Alexandria)

Western Sydney City Deal signed

Amazon’s second fulfillment centre committed (43,000 sqm) in Sydney’s South West (Moorebank), operational in the second half of 2018

QLD State Budget released - significant infrastructure expenditure over the next four years ($45.8 billion)

NSW State Budget released – transport infrastructure investment to continue ($51.2 billion on road and rail projects over the next four years)

$75bn$75 billion investment in the 10-year national infrastructure plan; with this Budget including $24.5 billion expenditure in new nationally significant transport projects

$26.2bnover 10 yearsLargest ever investment in Auckland’s infrastructure is committed $26.2 billion over 10 years

2018-19 Federal Budget Announced

$5.3bnover 20 yearsA 20-year agreement between the Australian and NSW Government, as well as the 8 local governments of Western Sydney to deliver Sydney Outer West transformation – creating the ‘Western Parkland City’. The City Deal is an addition to the Australian Government’s $5.3 billion investment in Western Sydney Airport to catalyse investment, development, and job creation

January 2018 February 2018 March 2018 April 2018 May 2018 June 2018

Financial Year 2017/18 in Review (cont.)



Major Transaction Overview

Sydney

The share of investment sales that occurred in NSW over the FYE2018 has decreased compared to last period, currently representing 35 per cent (or $1.6 billion) of Australia’s total sale volumes (for transactions $5 million and over). The lack of asset supply in the market, coupled with the sustained levels of capital from domestic and offshore buyers, has seen yields continue to compress and sale volumes decrease.

The weight of capital flowing into NSW industrial property continues to be sourced from a diverse range of investors, including offshore capital from USA, Singapore, and Taiwan. However, domestic REITs have been outbidding offshore groups to gain more exposure in the industrial property sector, and this is reflected in the lower proportion of offshore investors to total sale volumes (10 per cent over the FYE2018, compared to 30 per cent over the FYE2017).

The urgency felt in the market to secure industrial space in Sydney, against a backdrop of diminishing industrial land supply and lack of core assets, was reflected in the acquisition of secondary grade stock in infill locations. This included the sale of a 7.7-hectare site at 270-286 Horsely Road, Milperra for $52 million by Leda Holdings in May 2018.

The weight of capital chasing secondary stock has led to yields tightening by around 45bps over the FYE2018 to an average of 6.21 per cent (as at Q2 2018). With the significant price escalation of secondary industrial assets, core products are anticipated to come to market over the latter half of 2018.

The South sub-market continues to record the lowest yields nationally, averaging 4.88 per cent for prime grade assets (as at Q2 2018). South Sydney is one of the most highly sought after sub-markets for industrial land in the country, as the region is supported by major strategic transport gateways (including Sydney Airport and Port Botany) and is situated within Sydney’s inner metro region. Over the period, the South sub-market recorded 32 per cent of the total volume of investment sales for NSW. A notable transaction over the FYE2018 within the region included the sale of 3-19 Military Road, Matraville by EG Funds to a private investor for $20.915 million at a yield of 4.92 per cent in late 2017.

270-286 HORSELY ROAD, MILPERRA, NSW

Price

$52mDate

May 2018Vendor

Lennox International Inc.Purchaser

Leda Holdings Pty Ltd

$1.6bnFYE2018 transactions in NSW

Down from FYE2017 transactions

35%of Australia’s total sale volumes (for transactions $5 million and over)

of retail investment market




Melbourne

Total investment sale volumes in Melbourne has decreased over the FYE2018 compared to last period (similar to Sydney) by around 36 per cent, and represents 26 per cent (or $1.2 billion) of Australia’s total sale volumes (for transactions $5 million and over). The lack of supply of built industrial investment product in Melbourne is necessitating the move for long-term investors to acquire land holdings, from which they will be able to acquire investment product.

Investment sales in Melbourne were concentrated within the Outer East (35 per cent) and West (26 per cent) sub-markets. Notable sales in the West include the acquisition of four industrial properties at 25-33 Fourth Avenue, Sunshine by the GPT Group for $74 million (6 per cent yield) in late 2017. As well as the Myer Distribution Centre (30,400 sqm facility - with surplus land of 20,000 sqm for further development opportunities) at Altona North, purchased by Lendlease’s APPF Industrial for $38.2 million in late 2017.

The solid capital inflow from offshore (30 per cent) and onshore (69 per cent) groups has led to further yield compression for both prime and secondary grade assets, averaging 6.18 per cent and 7.18 per cent (as at Q2 2018), respectively. Yield compression was stronger for secondary assets, at 14bps (compared to 10bps for prime), as there has been a lack of core product on market.

$1.2bnFYE2018 transactions in Melbourne

Down from FYE2017 transactions

26%of Australia’s total sale volumes (for transactions $5 million and over)

25-33 FOURTH AVENUE SUNSHINE

Price

$74mDateFebruary 2018VendorThe GPT GroupPurchaserTaylor Family




Brisbane

Despite fierce competition by investors for quality warehousing, sale numbers have been restricted by the limited stock of existing and speculatively built product. For example, the first half of 2018 recorded around $110 million of industrial sales compared to $247 million which occurred in the first half of 2017.

The average prime grade industrial yield across greater Brisbane (as at Q2 2018) was 6.36 per cent. This average has tightened 20 basis points since June 2017 and 50 basis points since June 2016. The combination of fierce competition by investors for quality warehousing product, the current limited stock available along with limited land supply pipeline to cater for large scale industrial facilities are expected to place further pressure on yields over the coming year. Additionally, although funding costs are anticipated to rise over the coming year, prime grade effective rental growth are projected to be moderate, derived off the back of falling incentives, and should also support further tightening of yields in the interim.

$1.1bnFYE2018 transactions in Brisbane

41%Offshore buyers

Supported by improved State economic results and $43 billion of infrastructure in the pipeline, Brisbane’s industrial market recorded strong results over the FYE2018 with $1.1 billion in total sales volume (for transactions $5 million and over). Offshore buyers represented 41 per cent of total sales and included such buyers as Blackstone, Cache Logistics and Ascendas. The emergence in recent years of new high quality 10,000 sqm plus warehousing facilities, housing global and national tenants, is directly contributing to a significant number of offshore buyers seeking industrial assets across Brisbane.

Several major portfolio sales dominated the total dollar volume of sales over the period including:

▶ ARA/Cache logistics purchase of two Brisbane industrial assets for $27.1 million as apportionment of a total national portfolio sale of $177.6 million

▶ Hastings Deering portfolio of Brisbane assets selling to Charter Hall for $110 million.

Additionally, the largest single industrial asset, the Coca-Cola Amatil facility at 220-260 Orchard Road, Richlands sold to Charter Hall on a 20-year lease back arrangement for $157 million reflecting a record low initial yield of 5.19 per cent. COCA-COLA AMATIL

FACILITY AT 220-260 ORCHARD ROAD, RICHLANDS

Price

$157mDate

December 2017Vendor

Coca-Cola Amatil (Aust) Pty Limited

PurchaserCharter Hall




Adelaide

South Australia has recorded the least amount of investment activity over the FYE2018, with investment sales representing around 2 per cent (or $98.7 million) of Australia’s total sales volumes (for transactions $5 million and over). To note, most of the transactions have been below $5 million.

Capital investment into Adelaide’s industrial property market continues to be mainly sourced from domestic private investors.

A significant portfolio transaction over the FYE2018 was COPE Sensitive Freight (late 2017), which included seven assets across all Australian states and the Northern Territory. Assets within this Portfolio included one within close proximity to the Port of Adelaide at Royal Park.

Although there has been limited sale activity in Adelaide, investors will consider regional assets, or non-Eastern Seaboard states, in the pursuit of yields. Average yields in Adelaide for prime and secondary grade stock average 8.19 per cent and 9.44 per cent (as at Q2 2018), respectively, and represent the highest yields in the country. Despite this, Institutional grade buyers demand requirements are generally for assets above $15 million and properties of this scale have not arisen on market.

Further impacting the limited activity of the industrial market in Adelaide is the gradual phases of the stamp duty exemption, with the third and final phase effective on 30th June 2018. As a result, activity is anticipated to pick-up from Q3 2018 onwards.

$98.7mFYE2018 transactions in South Australia

Most of the transactions have been below $5 million

2.0%of Australia’s total sale volumes (for transactions $5 million and over)

WHOLE COPE PORTFOLIO

Price

$31.5mDate

September 2017Vendor

Milawa Holdings Pty LtdPurchaser

Ascot Capital Limited

SA ASSETPrice

$3.1m




Perth

For the FYE2018 Perth’s industrial investment market was characterised by a surfeit of funds looking for assets in a tightly held market. As such, transaction volume was stable. Over the FYE2018, 32 major transactions totalling $529 million was recorded (for transactions $5 million and over). This was greater than the volume of transactions recorded over the FYE2017 (i.e. $497 million).

Institutional investor activity remained robust, representing around 34 per cent of the number of assets acquired in the Perth market. Of the total $529 million that transacted, approximately 18 per cent was accounted for by off-shore entities.

Major assets changing hands over the period were mainly concentrated within the East sub-market, with 15 transactions totalling $277 million. The South region recorded eight assets sold that amounted to $103 million.

While the market has seen a correction in land value and rent (of up to 30 per cent over the past 24-36 months) the weight of funds at the institutional level, combined with limited opportunities has led to a

compression of yields for quality investment stock. As is historically the case, Perth’s supply of prime grade industrial real estate remains largely in the hands of a group of high net worth individuals and WA based syndicators. There are however opportunities for a local or broader investment strategy for Eastern Seaboard States and overseas based investors.

Although the end of the mining boom led to an increase in vacancy across Perth, particularly in heavy industrial precincts of Kwinana and Henderson, increased demand for industrial property has been evident over the FYE2018 as mining activity is once again on the rise.

$529mFYE2018 transactions in Perth

Up from FYE2017 transactions

18%Offshore buyers

WHOLE COPE PORTFOLIO

Price

$31.5mDate

September 2017Vendor

Milawa Holdings Pty LtdPurchaser

Ascot Capital Limited

WA ASSETPrice

$13.2m



New ZealandInvestment Market

The New Zealand industrial property sector has performed strongly over the past 12 months. Landlords are experiencing rental uplifts as the availability of prime industrial space continues to shrink. Robust investor demand continues to drive investment activity. The shortage of stock for sale is pushing yields to record lows. Investors are still able to access lending at low interest rates.

LOW VACANCY DRIVING RENTS UPWARDSA shortage of prime stock in Auckland and Wellington continued to provide positive rental uplifts for landlords over the past 12 months. Vacancy rates in both Auckland and Wellington reached record low levels of 1.2 per cent and 2.1 per cent, respectively, in the second half of 2017. The succeeding six-month overall vacancy rate has gone up marginally, but not enough to alleviate demand pressures. Occupier demand in Christchurch has improved, and despite a high level of new supply, rents have remained stable.

The value of new industrial building consents in New Zealand totalled around $595 million in the year to March 2018, a 51 per cent increase compared to a year ago, indicating more supply is coming. Auckland region building consent approvals grew more than 2.5 times to $193 million in March 2018, compared to $77 million a year prior. The hive of activity includes new speculative builds at Highbrook Business Park by Goodman. In addition, a new 65,000 sqm distribution centre for Foodstuffs will be developed by Auckland Airport at The Landing.

INDUSTRIAL SECTOR STILL A CLEAR FAVOURITEIndustrial property remains a sought-after asset class among investors. Provisional sales data for the FYE2018 showed a total of $830 million was transacted (for assets $5 million and over). Sale levels have eased compared to the FYE2017, which aggregated to $1.2 billion from a total of 122 sales, a reflection of the lack of stock available for sale rather than a decline in investor appetite.

Activity between the $10 million and $20 million value spectrum have been particularly buoyant. While few transactions have sold above $20 million, the largest acquisition in 2017 was Transport Investment’s portfolio, which sold to Property for Industry for $69.5 million at a yield of 7.2 per cent. The sale included a total of eight industrial properties and one office across New Zealand with a weighted average lease term of 13.9 years.

The Q2 2018 Colliers Commercial Property Investor Confidence Survey results show continued optimism for the industrial sector over the next 12 months. All main centres are tracking well above their respective 10-year averages. Auckland leading the charge (net positive 63 per cent), followed by Wellington (net positive 46 per cent), and Christchurch (net positive 7 per cent).

VACANCY RATES REACH RECORD LOWS

Auckland

1.2%Wellington

2.1% 51%Increase on FY17

$595mValue of new industrial building consents

Indicating more supply is coming

104-140 NEILSON STREET ONEHUNGA

Price

$15mDateMay 2018VendorFillmore Trusts PartnershipPurchaserConfidential



New ZealandInvestment Market (cont.)

INDUSTRIAL YIELDS AT RECORD LOW LEVELSPrime industrial yields are currently at their lowest levels across all three main centres in New Zealand. The yields achieved in recent transactions certainly shows momentum for prime industrial yields to dip further, especially in the Auckland market. Another reason for further yield compression is positive rental growth expectations, encouraged by low prime vacancy (at 1.5 per cent, as at Q1 2018). Interest rates have been at cyclically low levels, and forecasts suggest that increases won’t come until Q3 2019.

OUTLOOKFYE2018 was a period where the industrial sector performed strong, with the momentum for the next 12 months expected to be a continuation of similar conditions. The rapid increase in land value has limited the feasibility of further supply to the market. However, industrial building consents data suggests more supply is coming, particularly in Auckland, where a wave of speculative builds will be completed by the end of 2018. There are opportunities from the growth in eCommerce to further add to the demand for industrial space. Central locations that are close to key transport links are critical and it is projected that rents will face further upward pressure which will strongly underpin capital values.

New Zealand Prime Industrial Indicators

Average Rents ($/sqm) Average Yields (%) Average Capital Values ($/sqm)

Q2 2017 Q2 2018 Change Q2 2017 Q2 2018 Change Q2 2017 Q2 2018 Change

Auckland $143 $150 4.7% 5.77% 5.50% -28 bps $2,537 $2,781 9.6%

Wellington $104 $112 7.7% 7.69% 7.52% -17 bps $1,349 $1,484 10.0%

Christchurch $122 $122 0.0% 6.83% 6.55% -28 bps $1,790 $1,865 4.2%

Source: Colliers International Research

Note: Combined warehouse and office rents.

AUCKLAND

$608.0m FYE2017

$495.1m FYE2018

WELLINGTON

$68.5m FYE2017

$50.5m FYE2018

CHRISTCHURCH

$277.2m FYE2017

$76.5m FYE2018

REST OF NEW ZEALAND

$275.7m FYE2017

$208.3m FYE2018

Source: CoreLogic, Colliers International Research.

Note: Provisional sales for property NZD $5 million or more for FYE2018.

Major Industrial Sales by Value



The eCommerce Growth Potential

Global capital has followed Australia’s industrial assets as investors position themselves ahead of the growth in eCommerce, where this has played out in overseas markets. Given the usual US-Australia lag in market/consumer trends, the eCommerce boom that occurred in the USA a decade ago is a pattern projected to be replicated in Australia.

Over 2002 to 2007, the USA recorded an average annual growth rate of retail eCommerce sales of around 24 per cent. This was against a backdrop of a relatively low and constant population growth rate averaging 0.8 per cent per annum. Over this time, we saw the USA industrial property sector benefit, as global capital followed the eCommerce growth stage experienced in the US – particularly within locations where population is highly concentrated.

Australia is currently experiencing an annual growth rate in online retail sales of around 29 per cent over the last four years (according to the ABS), and with our stronger population growth rate (historic and forecast) averaging 1.6 per cent and large investments in transport and industrial specific infrastructure, this is expected to be a key driver for an exponential growth path of online retail sales – like the US.

Over 2002-2007

24%average annual growth rate of retail eCommerce sales

Over 2014-2018

29%average annual growth rate of retail eCommerce sales

Average population growth per annum

0.8%Average population growth per annum

1.6%

USA AUSTRALIA

14

Sale

s (A

UD

Billio

ns)

Popu

latio

n (M

illion

s)

12

10

8

6

4

02002

Source: ABS / Colliers Research.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2

26

25

22

23

24

21

20

18

19

Retail eCommerce Sales Australian Population

eCommerce Introduction-Growth.Average annual growth of 29%

Australia Online Retail Sales

350

Sale

s (U

S Bi

llions

)

Popu

latio

n (M

illion

s)300

250

200

150

100

02002

Source: Statista / IMF / Colliers Research.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

50

330

300

310

320

290

280

260

270

Retail eCommerce Sales USA Population

eCommerce Maturing.Average annual growth moderating to 13%

USA Retail eCommerce Sales

eCommerce Growth.Average annual growth of 24%

GFC AverageAnnual Growth

Rate of 5%

Average annual population growth rate = 1.6%Average annual population growth rate = 0.8%



According to the ABS, the share of online retail sales to total retail sales in 2017 represented approximately 4.3 per cent. A similar level was achieved in the US in 2009 – an 8-year lag.

The application of the same annual growth rate in the share of online retail sales that occurred in the US between 2009 and 2017 to Australia, results in Australia’s online share increasing to 9.9 per cent by 2025. To note, this growth rate is conservative, as Australia has achieved a higher annual growth rate of online retail sales over the past few years than the US during their booming years of 2002 to 2007.

Based on retail trade forecasts to 2025 (by Delloitte Access Economics), this share represents total online retail sales equating to $37.8 billion in 2025.

Therefore, online retail sales in Australia, currently at around $13 billion (ABS), have the potential to increase by almost three-fold to $37.8 billion – an increase of $24.9 billion.

As eCommerce grows there will be positive spillover effects on the industrial market. That being said, eCommerce sales growth does not translate into a one-for-one increase in industrial space. However, it will certainly be a contributing factor in pushing demand for industrial space in Australia over the short, medium, and long term and place greater emphasis on supply chain efficiency and effectiveness in the Australian market. It is this pursuit of supply chain efficiency and effectiveness that directly impacts industrial property requirements in the market place.

The eCommerce Growth Potential (cont.)

The take-up strategy (eCommerce) has been faster with the global enterprises, particularly US based and 3PLs, who are facing this challenge head on as they strive to meet the new customer demands. We are now seeing this flowing through to all businesses, irrespective of size and whether Business-to-Customer or Business-to-Business.

The path to achieving efficiency and effectiveness in the supply chain, to cater for evolving demand/expectations, involves (but is not limited to):

Locational optimality (whether servicing global / domestic / state / local market)

Scale optimality

Technology input

4.3%of retail sales in Australia represented by online sales in 2017

8 yearLag behind US figures where a similar level was achieved in 2009

12%

Shar

e of

Tot

al R

etai

l Sal

es (%

)

10

8

6

4

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Source: ABS / DAE / Colliers Research.

2

USA Australia Forecast

eCommerce Sales as a Share of Total Retail Sales

1.8%

4.1%

9.5%

1.8%

4.3%

9.9%

Australia was faster at achieving the 4.3 per cent share, from 1.8 per cent, at 4 years compared to the US at 6 years.



The eCommerce Growth Potential (cont.)

Australia has been ranked one of the top 5 countries in the world for most profitable industry within the Fresh Groceries sector. With expected growth in the online grocery sector, demand for purpose built warehousing and cold storage facilities will continue to rise.

Determining optimal location(s) of industrial transport and logistic type assets will require factoring in proximity/accessibility to major infrastructure nodes and access/proximity to where population density is high. Operating within proximity to areas that contain mass population has meant businesses (both domestic and multi-national players) are focusing their search to Australia’s East Coast.

Australia’s Eastern Seaboard population represents

78%of the country’s total population.

FYE20086.9

FYE20137.4

FYE2018

7.9 FYE20238.5

FYE20289.1

10 Year historic annual growth rate

Projected annual growth rate (FYE2018-FYE2028)1.4 1.4

NSW

FYE20085.2

FYE20135.7

FYE2018

6.4 FYE20237.0

FYE20287.6



VIC

FYE20084.2

FYE20134.6

FYE2018

5.0 FYE20235.4

FYE20285.8



QLD

AUSTRALIA ONLINE SPENDING HIGHLIGHTS

Australian eCommerce Spend

Spend on Domestic GoodsSpend on International Goods

Source: Australia Post 2017 / Colliers Research.

Australian Online Shopping Spend by Category of Goods (Top 5)

Source: NAB Online Retail Sales Index / Colliers Research.

HomewareMediaGroceries

FashionPersonalOther

21%

79%

21%

9%

15%

20%

18%17%

Population Statistics (millions)



Investment Outlook & Forecast Indicators

There has been a persistent shortfall of industrial stock on the market relative to demand. This is being evidenced in the sharp increases in land prices, lower investment volumes, and tighter yields (with scope for further compression over the next six months) in the major industrial markets across Australia.

As key investment sales are being backed by local players – outbidding offshore buyers – we expect there is greater growth potential in the industrial property market. Demand for industrial property in Australia has, and will continue to, rise – particularly as institutional investors gear their strategies toward greater exposure in the industrial sector and build their industrial investment portfolios.

Against a backdrop of limited prime assets on market, we project that the capital seeking industrial property will begin to move towards securing development land for investors to build their own assets – an alternative means to acquire industrial land and gain exposure into the industrial property sector. The feasibility of this is due to a robust outlook with respect to infrastructure expenditure, population growth, the increase in import/export activity, as well as greater advanced technology adoption and eCommerce playing a larger part of the industrial real estate (as proceeded by global trends).

Colliers International is closely tracking and leading insights into the impact of the eCommerce sector and what this means for the industrial property sector. This is particularly with respect to new technology as well as industrial operational divisions (by geography and industry sector) – thus catering for the eCommerce growth).

10%

Aver

age

Annu

al G

row

th R

ate

(%)

8

6

4

0

Indi

a

Source: IMF / Colliers Research.

Sing

apor

e

Germ

any

Aust

ralia

Chin

a

USA

Fran

ce

Hon

g Ko

ng

Cana

da UK

Japa

n

2

Exported Goods Imported Goods

Projected Average Annual Growth of Imported/Exported Goods (2018 to 2022)

7.5

9.3

4.3

5.1

4.14.9

5.0

3.6 4.2 3.8 3.4 3.92.8

3.9 3.0 3.3 3.12.6

3.4

0.6 0.4

2.1

Australia’s growth in imports and exports of goods over the next few years is expected to remain at strong levels relative to other countries. Driving this growth is Australia’s strong trade ties with major Asian countries. Increased trade flows affect industrial property demand around major industrial infrastructure, including ports, intermodal terminals, and motorway networks, and boosts warehouse and logistics activity.



Investment Outlook & Forecast Indicators (cont.)

Projection over the next five years is double the average of the world’s top 30 economies.

1.8% Projected Growth

1.6

Indi

a

Source: IMF / Colliers Research.

Sing

apor

e

Germ

any

Aust

ralia

Chin

a

USA

Fran

ce

Hon

g Ko

ng

Cana

daUK

Japa

n

(0.6)

Projected Average Annual Population Growth

(2018 to 2022)

1.4

1.2

1.0

0.6

0.8

0.4

0.2

0.0

(0.4)

(0.2)

-0.4

0.0

0.50.6 0.6

0.7

0.80.9

1.0

1.3

1.6

VIC 1.7% NSW 1.4%The strongest annual growth rate from

AUSTRALIA’S POPULATION GROWTH

Australia’s Top 12 goods and services export markets2015-2016

The majority of Australia’s top 12 export markets are located within the Asian region.

AaaAa (Aa1, Aa2, Aa3)A (A1, A3)Baa (Baa3)

Source: Government credit rating for foreign currency bonds (Moody’s, 19 August 2016).

Note: Country ceiling for Europe only re�ects the UK.

Sources: Department of Foreign A�airs and Trade, Australia’s trade in goods and services by top 15 partners 2015-16 (released 18 November 2016); Austrade.

EUROPEAN UNION

CHINA

USA

TAIWAN

SOUTH KOREA

JAPAN

HONG KONG

INDONESIA

NEW ZEALAND

SINGAPORE

MALAYSIA

INDIA

A$26.7bn(incl UK: A$12.1bn)

A$85.9bn

A$7.5bn

A$7.5bn

A$11.3bn

A$9.8bn

A$19.7bn A$38.0bn

A$12.8bn

A$6.8bn

A$12.8bn

A$21.9bn

AUSTRALIA



LARGE COMMITMENTS IN INFRASTRUCTURE PROJECTS CONTINUES TO BOOST CONFIDENCE. As announced in the Federal Budget 2018/19, the government will invest $75 billion under the 10-year National Infrastructure Plan. Land value uplift will therefore continue to be supported as several major infrastructure commitments will boost the efficiency of industrial operations, including freight throughput.

Source: Budget Papers.

Investment Outlook & Forecast Indicators (cont.) NATIONAL PROJECTS

▶ $9.3 billion Melbourne to Brisbane Inland Rail.

NSW ▶ Up to $5.3 billion Western

Sydney Airport.

▶ $1.5 billion of funding and a $2 billion concessional loan for the WestConnex project in Sydney.

▶ $2.9 billion Western Sydney Infrastructure Plan.

VIC ▶ $500 million M80

Ring Road.

▶ $500 million Monash Freeway Upgrade.

QLD ▶ $6.7 billion Bruce Highway.

WA ▶ $1.3 billion METRONET,

including $490 million for the Forrestfield Airport Link.

SA ▶ $1.6 billion Adelaide North-

South Corridor.

TAS ▶ $400 million Midland

Highway.

ACT ▶ $67 million for Capital Metro

under the Asset Recycling Initiative.

NT ▶ $192 million for the

Northern Australia Roads Program.

$180mCentral Arnhem Road Upgrade

$100mBuntine Highway

Upgrade

$160mOutback Way

$220mGreat Northern Highway

Bindoon Bypass

$1.05bnMETRONET rail project

$944mPerth congestion package

$560mBanbury Outer

Ring Road

$160mJoy Baluch Bridge

duplication $1.2bnAdelaide North-South

Corridor future priorities

$220mGawler Rail Line electrification

$177mAdelaide North-South

Corridor (Regency Road to Pym Street)

$50mGeelong Rail Line

$400mTasmanian Roads Package

$461mBridgewater Bridge

replacement

$225mBridgewater Bridge

replacement

$132mPrincess Highway East (Traralgon to Sale Duplication)

$1.75bnNorth East Link

$475mMonash Rail

$140mFor urban

congestion projects

Up to $5bnMelbourne Airport

Rail Link

$100mMonaro Highway

Upgrade

$170mCunningham Highway

– Yamanto to Ebenezer (Amberley Interchange)

$155mNowra Bridge

$400mPort Botany Rail Line

Duplication

$971mPacific Highway

Coffs Harbour Bypass

$300mBrisbane Metro

$390mBeerburrum to

Nambour Rail Upgrade

$3.3bnBruce Highway – Next PrioritiesCoorroy to Curra Section D ($800m)Pine River to Caloundra ($880m)

$1bnM1 Pacific Motorway

(Eight Mile Plains to Daisy Hill and Varsity Lakes to

Tungun sections)

NSW

VIC

QLD

WA

NT

SA

TAS



Detailed Transaction List TRANSACTIONS $20 MILLION PLUS, FYE2018 Transactions deemed confidential have been omitted

NSW

ADDRESS SUBURB SALE TYPE SALE PRICE STAKETRANSACTION

DATE VENDOR PURCHASER PURCHASER ORIGIN

130 Wentworth Ave Banksmeadow Investment Sale $72,430,000 100% Dec-17 Sankfin Pty Ltd LOGOS Domestic

100 South Creek Rd Cromer Investment Sale $60,500,000 100% Aug-17 Roche EG Funds Mgmt Domestic

44 Clunies Ross St Cumberland Investment Sale $60,000,000 100% Apr-18 Boral ISPT Domestic

270-286 Horsley Rd Milperra Development Sale $52,000,000 100% May-18 Heat Craft Leda Holdings Domestic

7 Maitland Pl Baulkham Hills Development Sale $50,000,000 100% Sep-17 8 Eights Pty Ltd 7 Norwest Pty Ltd Domestic

219-231 Botany Rd Waterloo Investment Sale $40,000,000 100% Jul-17 Maville Group Landmark Group (Aus) Domestic

5 Irvine Pl Bella Vista Owner Occupier $36,000,000 100% Dec-17 Actron Investments Pty Ltd JBFT Offshore

8-10 Moore St Banksmeadow Investment Sale $36,000,000 100% Feb-18 Private Leda Holdings Domestic

8 Rodborough Rd Frenchs Forest Investment Sale $32,500,000 100% Oct-17 N/A N/A N/A

Hillsdale Ex-Masters Site Banksmeadow Investment Sale $25,200,000 100% Oct-17 Home Consortium Goodmans Group Domestic

3 Talavera Rd Ryde Investment Sale $25,000,000 100% Jul-17 MAC Goodman Domestic

484-486 Victoria St Wetherill Park Investment Sale $24,800,000 100% Nov-17 Leda Holdings N/A N/A

5 Williamson Rd Ingleburn Investment Sale $24,750,000 100% Sep-17 N/A Clarence Property Domestic

161 Arthur St Homebush West Investment Sale $23,100,000 100% Dec-17 Insulation Solutions Pty Ltd Raad Property Trust No. 47 Domestic

150-156 McCredie Rd Smithfield Investment Sale $23,000,000 100% Jul-17 Propertylink Group John Ye Investments Domestic

149 Orchard Rd Chester Hill Investment Sale $21,000,000 100% Feb-18 Sanchez and Sanchez Chung Enterprise Pty Offshore

3-19 Military Road Matraville Investment Sale $20,915,000 100% Dec-17 EG funds Private Domestic

12A Rodborough Rd Frenchs Forest Investment Sale $20,750,000 100% Aug-17 Stewart Investments (Nsw) Pty Ltd Propertylink Group Domestic




VIC



522-550 Wellington Rd Mulgrave Investment Sale $90,750,000 100% Nov-17 Growth Point Harry Stamoulis Domestic

25-33 Fourth Ave Sunshine Investment Sale $74,000,000 100% Dec-17 Private GPT Group Domestic

90-110 Mills Rd Kingston Investment Sale $50,600,000 100% Jul-17 Propertylink Group DEXUS Domestic

121-139 Dohertys Rd Altona North Investment Sale $38,150,000 100% Dec-17 DEXUS Property Group Lend Lease Domestic

26-38 Harcourt Rd Altona Investment Sale $37,300,000 100% Oct-17 Mirvac Morgan Stanley Domestic

169 Australis Dr Derrimut Investment Sale $34,000,000 100% Apr-18 Abacus Property Group Ascendas REIT Offshore

15-33 Alfred St Blackburn Investment Sale $31,500,000 100% Nov-17 GM Property Group Forza Capital Domestic

6 Albert Street Preston Investment Sale $30,100,000 Jun-18 Centuria Industrial REIT N/A Domestic

47-67 Westgate Dr Altona North Investment Sale $28,200,000 100% Oct-17 Mirvac Morgan Stanley Domestic

11 Siddons Way Hallam Investment Sale $22,000,000 100% Sep-17 Private Investec Australia Property Fund Offshore

QLD



220-260 Orchard Road Richlands Investment Sale $157,000,000 100% Nov-17 Coca-cola Charter Hall unlisted Prime Industrial Fund

Domestic

Various sites Acacia Ridge Investment Sale $110,000,000 100% Oct-17 Hastings Deering Charter Hall Domestic

69 Tingira St Pinkenba Investment Sale $48,500,000 100% Oct-17 Incitec Sentinel Property Group Domestic

920-928 Nudgee Rd Banyo Investment Sale $36,775,000 100% Dec-17 Sentinel Property Group Fife Capital Group Domestic

1-7 Wayne Goss Drive Berrinba Investment Sale $30,000,000 100% Dec-17 Goodman Group Ascendas Offshore

741 Nudgee Road Northgate Investment Sale $28,500,000 100% Sep-17 Survey Consultants Augusta Capital Domestic

64 -84 Lahrs Rd Ormeau Investment Sale $22,000,000 100% Aug-17 Tony and Christina Quinn OzProp Domestic

Captain Cook Dr Arundel Investment Sale $22,000,000 100% Oct-17 Colgate-Palmolive LOGOS Domestic



SA



180 Philip Hwy Elizabeth West Investment Sale $55,000,000 100% Dec-17 General Motors Peligra Domestic

6-10 Senna Rd Wingfield Investment Sale $21,000,000 100% Jul-17 Wingfield R Pty Ltd Wingfield OT Pty Ltd as trustee Ascot Capital Wingfield Property trust

Domestic

WA



1040 Wanneroo Rd Wanneroo Investment Sale $53,000,000 100% Nov-17 Ingham's Enterprises, TPG Capital Stockland Domestic

11 Talton Cres (Lot 6 & 7 Hugh Edwards Dr)

Perth Airport Investment Sale $46,000,000 100% Jul-17 Desmar Holdings Pty Ltd Growth Point Domestic

Hugh Edwards Dr Belmont Investment Sale $46,000,000 100% Aug-17 Private Investor Growthpoint Domestic

40 Solomon Rd Jandakot Investment Sale $44,750,000 100% Dec-17 Swire Cold Storage Pty Ltd Vanilla Australian Sub Tc Domestic

1968 Beach Rd Malaga Investment Sale $28,745,000 100% Feb-18 Venetian Nominees Pty Ltd Quadrant Investments Lfr Domestic

158 Kurnall Rd Welshpool Investment Sale $26,750,000 100% Dec-17 Swire Cold Storage Pty Ltd Vanilla Australian Sub Tc Domestic

32 Sheffield Rd Welshpool Investment Sale $26,250,000 100% Sep-17 Trust Co Ltd Alset Australian Sub Tc P Domestic




NZ



9 Properties (TIL Properties Porfolio)1

Various Locations Portfolio Sale $69,500,000 100% Oct-17 TIL Properties Ltd Property for Industry Domestic

The Hub Industrial Park, 101-103 and 109-117 Port Rd, 17 and 25 Toop St

Seaview Investment Sale $44,900,000 100% Dec-17 Seaview Commercial Investments Limited

Augusta Property Domestic

68-80 Stonedon Dve East Tamaki Investment Sale $32,577,392 100% Nov-17 Steel & Tube Holdings Limited Gasoline Properties Limited Domestic

80 Mount Wellington Hwy Mount Wellington Investment Sale $29,000,000 100% Jul-17 NCI Packaging (N.Z) Ltd The National Trading Company of New Zealand Ltd

Domestic

79 Carbine Rd and 10 Clemow Dve

Mount Wellington Investment Sale $27,115,000 100% Sep-17 Akarana Exports Limited Kiwi Property Group Domestic

4 Distribution Warehouses (Provida Portfolio)

Various Locations Portfolio Sale $22,195,000 100% Jul-17 Provida Foods Limited Silverfin Capital Limited Domestic

23 Dunlop Rd Waharoa Investment Sale $20,619,672 100% Jul-17 Waharoa Properties Limited Caniwi Properties (Dunlop Road) Limited

Domestic


1 Eight industrial properties and one office.



Authors

Malcom is the Managing Director of the Industrial Division at Colliers International. Malcom heads up one of the largest and most specialised industrial divisions nationally, which specialises in providing expert advice and solutions across Australia’s industrial property markets.

KEY AUTHORSMalcom Tyson Managing Director | Industrial

+61 412 248 883 [email protected]

Sass J-Baleh Associate Director | Research

+61 468 828 329 [email protected]

Sass is the head of Industrial research at Colliers International. Sass publishes industry-leading research and high-quality advice to the Colliers International internal team as well as external clients across Australia.



Team

NSW

Gavin BishopNational Director+61 401 146 [email protected]

Roger MillerNational Director+61 400 044 [email protected]

Michael CrombieNational Director+61 412 903 [email protected]

QLD

Simon BeirneNational Director+61 413 765 [email protected]

Matthew Frazer-RyanNational Director+61 431 963 [email protected]

VIC

Nick SaundersDirector+61 407 542 [email protected]

Alysia ReillyDirector+61 487 576 [email protected]

SA

Paul TierneyDirector+61 401 145 [email protected]

NZ

Greg GoldfinchNational Director+64 21 537 [email protected]

WA

Greg O’MearaDirector+61 434 659 [email protected]

NT

Craig InksterDirector+61 414 550 [email protected]

Documents

CAPITAL MARKETS INVESTMENT REVIEW · 2018-08-20 · This year’s Capital Markets Industrial Investment Review will highlight the key market transactions and trends recorded over