20 After registering exceptionally strong sales values in 2021, activity in the Adelaide industrial market slowed last year, but remained above the long run average. Like many other markets, there is a shortage of completed deals to confirm where yields sit, but we surmise prime yields softened 25 to 40 basis points during the second half of 2022, as the impact of rising interest rates flowed through, ending the year between 5.0% and 6.8%. Across the regions, rising rents offset most of the yield softening, with prime values changes ranging from slight price falls to modest price gains during the second half of 2022. Major recent sales included: • 2-4 Oxenham Street, Dudley Park, was sold via a 30-year sale and leaseback by Ensign Services for $20 million on a yield of 5.48%. The property has a gross lettable area of 12,400 square metres; and, • 336-346 Richmond Road, Netley (8,000 square metres of warehousing and office space) was sold for $10.25 million to developers BuildTec. Investment market It is expected a slow phase of yield softening seen during the second half of 2022 will continue this year, spanning across the markets, including Adelaide. The next 12 to 24 months will see 10-year bond rates remain around or above current rates, before following the US and gradually tapering back to a longer term trend rate. As a result, sustained upwards pressure on the cost of capital, forcing investors to adjust their required return on investment. Adelaide’s narrow yield spread on industrial properties will unsettle many investors, causing yields to continue softening. 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. We anticipate no short-term change in Adelaide’s investor profile. If a large and newly developed asset with a long lease transpires, AREITs and other institutional investors are likely candidates, particularly if the lease captures future rental uplift. Hence, private investors and owner-occupiers will dominate the smaller end of the market. Investment outlook 19A Logan Street, Adelaide SA 5000 Industrial Market Monitor | 1st Half 2023
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