In a volatile financial market, it is increasingly important to consider the fundamental property metrics supporting investment opportunities. The industrial and logistics sector has shown strong growth in recent years, but as rising interest rates impact the market, managers are required to recalibrate their strategy for unlocking value.
Rental growth is currently at record highs, and the national average vacancy rate is one of the lowest ever seen globally, according to CBRE.
That outperformance is attracting strong investment inflows, and the substantial supply pipeline for 2022 of ~2.5 million sqm would have been even higher were it not for weather and material delays pushing completion of some projects into 2023.
Yet despite this rapid expansion, supply continues to lag demand thanks to a ‘perfect storm’ of positive factors including a shortage of suitably zoned land; the ongoing rise in e-commerce penetration; and an increased requirement for local warehousing and manufacturing facilities on the back of concerns over supply chain resilience.
With owners reluctant to sell in anticipation of further capital gains and/or rental growth, the restriction of supply is creating significant competition for assets, sustaining property prices and making it increasingly difficult to find value as an investor entering the sector in 2022.
However, there is still value to be found if you know where to look.
So, where can long-term value be found in industrial property in 2022?
Several trends are currently emerging in the industrial and logistics space that are worth watching.
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Rental growth
Strong capital growth in the industrial & logistics market over the past few years has been driven by yield compression. However, it is rental growth that is sustaining the sector’s impressive returns in 2022.
CBRE reports that the industrial vacancy rate in Australia of just 0.8% is currently one of the lowest on record worldwide, and Colliers notes that the lack of leasing options is driving the acceleration of rents across all states and territories, with the national weighted average prime rent increasing by a record high of 5.6% over the three months of Q2 2022 alone.
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Regional areas and major-city corridors to outperform
Knight Frank identifies Melbourne’s western corridor, Adelaide’s outer north and the north of Brisbane are some of the areas likely to experience the strongest industrial demand across 2022.
Currently, value is to be found in regional areas and the areas surrounding capital cities in locations such as Geelong, Toowoomba, and Newcastle. Key regional hubs including Mackay, Cairns and light industrial areas around Darwin, Adelaide and Perth are also providing opportunities for investment value.
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New technologies
Tenants’ requirements are changing as businesses increasingly deploy new technologies such as AI, smart manufacturing and autonomous mobile robotics, and their workforces become more sophisticated.
As a result, modern facilities that provide greater flexibility and can cater for the growing uptake of digitisation and automation will be in greater demand, providing new opportunities for forward-thinking developers and landlords.
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Upwards rather than outwards
To increase capacity without breaking new ground, industrial buildings are becoming taller. With land prices at a tipping point, more multi-storey industrial developments are emerging in higher-density locations such as Sydney and Melbourne.
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Sustainability
Industrial tenants are increasingly aware of energy management and ESG considerations. As a result, industrial properties which integrate solar power and other green technologies are providing higher value.
Seeking properties which currently, or through further development could incorporate these considerations is a priority for the Trilogy Industrial Property Trust.
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Identifying Expansion Opportunities
With land supply constraints and record-low vacancy, it becomes increasingly important to find ways to work with existing tenants to expand facilities to meet their growing needs. Fund managers that have experience in development and are willing to take a hands-on active approach will be able to retain tenants that would otherwise have sought alternative options.
Find out how we create value through the Trilogy Industrial Property Trust
As experienced fund managers, we understand the forces currently shaping the industrial and logistics sector.
We invest heavily in researching potential acquisitions and performing due diligence to identify pockets of potential value.
The Trilogy Industrial Property Trust’s first properties were acquired in 2018 in Mackay, a location which had suffered from the mining downturn at the time – however we saw its potential to recover.
Our most recent acquisitions for the Trilogy Industrial Property Trust (Industrial Trust) were a 26,100 sqm warehouse and office facility located in the Sunshine Coast Industrial Park, the Sunshine Coast’s largest industrial estate, as well as a 7,300 sqm facility located in Tomago, in NSW’s Newcastle region. The acquisitions are located in key regional areas positioned for growth, and added geographic diversity to the trust
The most recent expansion project undertaken by the Industrial Trust is at 118 Colemans Road, Carrum Downs, VIC. The Trilogy team worked with the tenant, Tempur Australia, to construct a 550 sqm warehouse extension, which enabled Tempur to achieve the product line growth required to extend their lease through to August 2028.
The diversity of the Industrial Trust’s portfolio, which currently includes 15 properties spread across four states and a variety of urban and regional locations as well as various tenants across different sectors has helped it deliver competitive returns. The Trilogy Industrial Property Trust paid investors 7.50 CPU p.a.* for the month of September 2022.
We also believe that consistent, competitive property portfolio returns over the longer term depend on a high-quality, well-managed tenant base.
The Trilogy Industrial Property Trust allows investors to participate in one of the most sought-after asset classes today with a minimum investment of $50,000. It is designed to provide competitive income returns and the opportunity for capital growth over the long term.
As with any investment, there are risks associated with the potential rewards from industrial property investments and it is important to ensure the investment risk profile suits an investor’s personal circumstances. A licensed financial adviser can help investors who may be unfamiliar with this investment option. We encourage you to read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) to ascertain whether this product is right for you and consult a licensed financial adviser.
This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Industrial Property Trust ARSN 623 096 944. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 30 September 2022 and by considering the Target Market Determination (TMD) dated 30 September 2022 for the Trilogy Industrial Property Trust ARSN 623 096 944 available at www.trilogyfunds.com.au. The PDS and the TMD contain full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy Funds, involve risk which can lead to no or lower than expected returns, or a loss of part or all of your capital. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy Funds are not bank deposits and are not government guaranteed. Past performance is not a reliable indicator of future performance.
