15 The Brisbane industrial investment market slowed last year with circa $1.5 billion of deals reported, after a very strong 2021 (when more than $2.5 billion transacted). Last year, a lack of stock offered for sale and investors pulling back as interest rates rose, hampered deals. Major recent sales of Brisbane assets included: • Morgan Stanley buying a 26,000 square metres building at 1 Ashburn Road, Bundamba for $53 million; • Frasers selling buildings on Arthur Dixon Court, Yatala for almost $48 million; and • Dexus selling a 12,100 square metres building at 112 Cullen Avenue, Eagle Farm to an undisclosed buyer for close to $32 million. Overall, the weight of money chasing industrial property in Brisbane pushed yields down to historical lows mid last year. At June 2022, average prime yields stood between 4.2% and 4.3% across the Trade Coast, South, and North. Yields on secondary assets sat between 5.3% and 5.4% across the three major industrial regions. Since then, a gap has emerged between buyer and seller expectations as the cost of debt rose. Indicators suggest that prime industrial property yields in Brisbane softened during the second half of 2022 along with the other eastern seaboard markets, but there has been limited sales to confirm the shift. We estimate there was a 40 basis point softening, lifting average yields up to 4.6% to 4.8% across the regions at December 2022. Reflecting the combination of strong stated rental growth and softening yields, average prime capital values grew by 6% to 12% during 2022, but prices stalled or fell slightly during the second half of the year. In line with the Sydney and Melbourne markets, yields for Brisbane industrial properties will come under more pressure to soften this year as higher bond rates flow through fully to investor’s cost of debt. Since 2020, 10-year bond rates have increased by 250 basis points, narrowing the spread to prime Brisbane industrial property yields to well below the long run average. It’s expected investors will factor in higher yields in offers, but owners are unlikely to sell unless they have too, leading to lower investment market activity. Even so, recent investor intention surveys suggest industrial property will remain a sought after investment class due to rising rents. Overall, Brisbane will follow Sydney and Melbourne, with a circa 60 basis points softening in prime yields this year before stabilising, pushing the benchmark South up to 5.3%. When combined with strongly growing rents, this suggests prime capital values growth will slow this year before returning to moderate gains towards the middle of the decade. Investment market Investment outlook 9 Holt Drive, Torrington, QLD, 4350 Industrial Market Monitor | 1st Half 2023
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