6 The Sydney industrial property investment market was very strong, with a record $5 billion in sales transacted in 2021 and $3.5 billion in the first half of 2022, underpinned by a number of major portfolio sales. The market started this year with notable momentum, but the volume of sales dropped during the second quarter 2022 as rising interest (long bond) rates caused investors to pause. Recent sales include: • Logos acquired a circa 27-hectare parcel of land on Archbold Road, Eastern Creek for $180 million with plans to develop an industrial property estate; • Centuria sold a 6,000 square metres warehouse at 30 Clay Place Eastern Creek property to an undisclosed foreign investor for around $35 million; and • A local developer bought an 8,000 square metres site at 101-103 Fairford Road, Padstow from Chess Engineering for almost $19 million. In Australia, and across the globe, 10-year bond rates have risen sharply this year, reaching 3.6 per cent at June 2022. On our forecasts, bond rates will remain around current rates between now and 2024 before tapering back to a longer-term trend rate around 2.9 per cent, taking its lead from the United States. Combined with rising short rates both in Australia and in the United States, this suggests the phase of yield firming in Sydney industrial property is drawing to a close. We are starting to see an increasing stand-off between potential buyers, who are pricing in offers on higher yields, and sellers unwilling to accept lower values. As such, little market evidence has emerged of softening yields. The combination of forecast rental growth and softer yields will see a slowdown in the extraordinary rate of capital value growth. There still appears to be a notable volume of funds assessing an entry into the industrial property market across Australia’s eastern seaboard, with large mandates from GPT, Logos and Gateway Capital just to name a few. However, investors have become more cautious and less urgent when assessing opportunities. Driven by the weight of funds chasing assets prime yields firmed 50 to 60 basis points during the 2022 financial year to a low of 3.5 per cent in the South, 3.6 per cent in the Outer West, 3.7 per cent in the Central West and 3.9 per cent in the North. Secondary yields in the South are assessed at 4.5per cent and 4.8 per cent in the Central West, representing a firming of 50 basis points for the 2022 financial year. The strength of yield firming underpinned strong growth in capital values in 2021, ranging from 37 per cent to 51 per cent across the regions, representing record breaking growth. In the 2022 financial year, growth rates were almost as impressive at an estimated 29 per cent to 42 per cent. Secondary capital value growth in the South and Central West was also exceptionally strong. We expect strong rental growth to drive solid price gains until the 2024 financial year, before a prolonged phase of more modest growth. Prime values in the Southern, Northern, Central Western and Outer Western regions are forecast to rise by 16 per cent to 23 per cent over the three years to the 2025 financial year. Secondary prices in the Southern and Central Western regions are forecast to rise 16 per cent to 17 per cent over the same period. Investment market Investment outlook 7138 The Bucketts Way, Taree South NSW 2430 Industrial Market Monitor | 2nd Half 2022
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