27 Over the next two years, we expect the Western Australian economy to perform well relative to the national economy, underpinned by a solid pipeline of (particularly resource-related) investment. We forecast an upswing in engineering construction in Western Australia, from $21 billion in the 2022 financial year to $26 billion by June 2024. The recent strength in commodity prices have provided a boost to the Western Australian economy. The process of budget repair is coming through faster than expected which, combined with funding for the Perth City deal, is set to see public investment pick up. Major infrastructure projects including the staged Metronet (already under construction) will also provide further support. The strength of the Western Australian economy will continue to encourage businesses to invest in additional capacity over time, boosting demand for industrial property. We also expect transport and logistics operators in Perth to partake in the broader supply chain efficiency drive underway Australia-wide to cater to structural changes in consumer spending, most notably the continued growth of online retail and firming up local supply chain capacity to service local consumer demands. We forecast industrial demand to be broadly positive through the 2023 financial year before easing a little to still robust growth in the 2024 and 2025 financial years. The strength of demand for industrial property should help keep vacancies contained. In response, we expect further rises in industrial property rents to flow through. Leasing outlook After rising to volumes well above average in 2021, activity in the Perth industrial property investment market has slowed through 2022. Although, the value of deals has held up due to some large transactions. Recent major sales include: • Charter Hall recently acquired the partially developed 72-hectare Roe Highway Logistics Park for a reported $300 million; • Charter Hall bought 919 Abernethy Road, High Wycombe for around $26 million on a 4.7 per cent yield; • Centuria bought a 4,900 square metres industrial property at 431 Victoria Road, Malaga for almost $11 million, reflecting a yield of 5.0 per cent; • Centuria also acquired 204-208 Bannister Road, Canningvale for just over $10 million, with plans to redevelop the 2.5 ha site; and • Redhill Partners buying a 14,300 square metres industrial property at 15 Beach Street, Kwinana Beach on a sale and leaseback from AusGroup for around $16 million. Investor interest remains strong in Perth, particularly for offerings that present the potential to reset passing rents at higher market rents. Even so, prospective investors are reassessing property values to reflect the flow through from higher interest rates. However, like other markets, there is a lack of sales evidence to confirm any downward price revision or softening in yields. At the second quarter of 2022 prime industrial yields in the benchmark East sat an average 5.0 per cent, unchanged from six months earlier. Prime average yields in the South and North sat close to levels in the East. Average yields for secondary properties typically sat around 100 basis points above prime yields. Investment market Industrial Market Monitor | 2nd Half 2022
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