Almost $1 billion worth of Australian industrial assets have been transacted in 2012, 80 per cent of which have been bought by offshore investors - an increase from 10 per cent in 2008.
What is it about Australian industrial property now that makes it so attractive to offshore investors? Where are the most attractive industrial markets in Australia? And what sort of stock should potential investors be looking for?
Globally, transport and logistics facilities are becoming a favoured investment class. In Colliers International's most recent Global Investor Sentiment Survey, this property type was the preferred investment category for Canadian and US investors. In Australia, industrial was the fourth-most-preferred class in 2011, but in 2012 moved up to second place.
Many factors have led to this spike in popularity, including continued movement of manufacturing to Asia and a need for more warehousing in non-Asian regions; an increasing standardisation in the types of warehousing and distribution centres being developed; and an increased ability to reuse vacated industrial space.
One of the most attractive aspects of transport and logistics facilities in Australia is that they are high yielding, relative to other forms of property in Australia and to yields for similar property around the world.
In 2012, average yields for prime-grade industrial in Sydney were 8.16 per cent, compared with A-grade office yields in the Sydney central business district at 7.35 per cent, or prime-grade average yields in Inland Empire in Los Angeles at 6.6 per cent. This differential, for what is a safe asset in a safe economy, is important.
To access Australian industrial property, most offshore investors prefer Australian real estate investment trusts under a capital partnership model. This is the easiest way to achieve scale and also gives offshore parties access to the development pipeline.
For Australian owners, the main benefit is being able to access the capital the offshore investors provide. This also allows them to invest in the development pipeline, creating opportunity for growth.
Although fewer foreign investors have bought industrial property directly in the past two years, there have been some instances in which the value of the property, and the return, were high enough to warrant direct investment.
Malcolm Tyson is the managing director (industrial) at Colliers International.