22 Investor interest in the industrial property sector is strong in Adelaide, as it is across the nation. Transaction activity is strong across the board. As anticipated, 2021 reached even higher heights than the peak in 2019, with approximately $750 million transacting across the year. Momentum has continued into 2022, with around $150 million selling across the first half of the year, limited only by tightly held assets. Transactions across all price cohorts remain buoyant, supported by expectations of strong rental growth despite a changing interest rate environment. Yields continue to firm, but at a slower pace than the last few years in the face of higher bond rates and interest rates amidst strong inflationary pressure. However, ongoing investor interest, solid occupier demand and low vacancies have seen Adelaide’s average prime industrial yield tighten by a further 15 basis points through the first half of 2022 to settle just below 5 per cent, with some transactions even reporting yields of below 4 per cent. Recent notable sales include: • Fife Capital’s $121 million purchase of the 45,000 square metres Treasury Wine Estates warehouse and distribution facility from AM Alpha, a year after AM Alpha paid $98 million for the asset; • MA Financial sold 5 Talisman Avenue in Edwardstown, with a WALE of 6.6 years, for $20 million on a yield of 4.6 per cent; • Centuria acquired a distribution facility and office warehouses at 27-30 Sharp Court in Cavan with a WALE of 5.3 years from MRS Property for just over $23 million, reflecting a yield of 4.2 per cent; and • ICAM paid $12 million for IKEA’s South Australian distribution centre on Transport Avenue in Netley. Investment market We believe a slow phase of yield softening will commence around the end of this year, spreading across the markets, including Adelaide. On our forecasts (notwithstanding short-term volatility) 10-year bond rates will remain around current rates over the next 12 to 18 months before tapering back to a longer-term trend rate, taking its lead from the United States. This will ultimately push up investors’ cost of capital, forcing many to adjust their required return on investment. We think the narrow yield spread on Adelaide industrial properties will unsettle many investors, sparking a slow phase of yield softening from the end of 2022. Investment outlook However, as with other markets, we are yet to see clear evidence in Adelaide of an asset repricing. Strong near term rental growth is likely to offset much of the near-term yield softening which means capital values are not expected to suffer a significant setback. The investor profile in Adelaide is unlikely to change in the near term. AREITs and other institutional investors are likely candidates if a large, newly developed asset with a long lease in place comes onto the market, while the smaller end of the market will remain dominated by private investors and owner-occupiers. Industrial Market Monitor | 2nd Half 2022
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