24 After rising to volumes well above long run averages in 2021, activity in the Perth industrial property investment market slowed through 2022. Although, the value of transactions last year was still above the long run average. Recent major sales included: • Altis paying over $31 million for a 9 hectare site on Bushmead Road, Hazelmere, incorporating 6,700 square metres of warehouse space with future development potential; • Westbridge Funds Management recently bought a 4,800 square metres building at 64 Great Eastern Highway, South Guilford for $16 million; • A private developer recently bought a 28,000 square metres site containing 10,300 square metres of warehouse space at 6 Ferguson Street, Kewdale for $16 million; • Harmony Property Investments bought a 6,000 square metres warehouse at 198 Bannister Road, Canning Vale for more than $14 million; and • Quadrant Investments paid close to $9 million for 4-12 Hoskins Road, Landsdale. The 1.8 hectare site has 5,800 square metres of warehouse space. Investor interest remains strong in Perth, particularly for offerings that present the potential to reset passing rents to higher market rents. Even so, there is a standoff evident between buyers and sellers and their respective price expectations as buyers’ factor in higher interest rates. There was a 40 to 50 basis points softening in average prime yields during the second half of 2022. At Q4 2022, prime industrial yields in the benchmark East sat an average 5.4%, 40 basis points higher than Q2. Prime average yields in the South and North sat close to levels in the East. Average yields for secondary properties typically sit around 100 basis points above prime yields. Yields for Perth industrial properties will soften further this year as the higher cost of debt via elevated bond rates flows through. However, much of this impact should be offset by the strength of rental growth over the near term. The higher yields in Perth relative to those on the eastern seaboard will continue to provide an incentive for purchasers to invest in the region. The combination of softening yields countered by rising rents points to some positive capital value growth prospects over the medium term. Investment market Investment outlook The quantum of industrial property completions across the Perth industrial market during 2022 was just below long-run averages, with circa 100,000 square metres finished. Most of this supply was focused in the East followed by the South. Extremely low vacancy rates at the end of 2022 show that all this space was easily absorbed by the market. Escalations in construction costs last year (due to labour and materials shortages) and land value gains, mean rents required for development feasibilities continue to climb, but not at the same pace as rents within existing prime buildings. This adds to the appeal for tenants to enter the prelease market if they do not have quick turnaround requirements. Supply Industrial Market Monitor | 1st Half 2023
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