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 "The property market tide is in ebb. The introduction of new taxes for NSW investors has added additional pressure to an already slowing Sydney property market." - Mark |
| Investors query bullish prices |
| By Maurice Dunlevy |
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May 27, 2004 SALES of industrial properties have fallen by almost 35 per cent since last year as stock dries up and smaller investors begin to question the bullish prices that have been paid. National industrial sales fell from $1.3 billion in the first quarter of last year to $850 million in the same period this year, according to CPM Research. "It's too early to predict where we're headed, but given the current level of demand the market is mediocre – there's no other word for it," said one agent. Sales slowed across the commercial market in the first quarter of the year with the value of all commercial sales (offices, hotels and retail) at $3.6 billion – down from $5.03 billion last year. Sydney researcher John Wakefield said forecasts were being sullied by interest rate uncertainty and the New South Wales tax regime brought in under the Government's April mini-budget. Industrial land values soared in the year to March with Macquarie Bank's Property Market Outlook report finding suburbs close to new infrastructure links showing increases of up to 57 per cent. "Total returns have been driven by sizzling growth in industrial land values and rents are still set to increase moderately later this year," the report said. Tenant demand is stronger, according to the report. However, demand is for larger areas close to infrastructure as tenants bring together formerly disparate operations. "Savvy tenants are paying less rent for more space," Macquarie found. Analysts said Sydney was recently rated by global real estate firm Cushman & Wakefield as having the world's 11th most expensive industrial property. Institutional buyers that included the ING Industrial Fund, Multiplex and the Macquarie Goodman Industrial Trust bought almost $140 million of industrial property between February and March this year. Jones Lang LaSalle industrial investment regional director Clive Taylor rates the Sydney market as the most vibrant he has seen in his 40 years of real estate. Mr Taylor said while the owner-occupier segment of sales was good, the investment market had never been stronger. He said institutional market yields were running about 8 per cent, while private investors were buying on yields of between 7.5 and 8 per cent for well leased, modern industrial property. He does not believe yields will fall much further, despite the weight of funds chasing the investment market. However, valuers and independent property advisers LandMark White is not as upbeat with its assessment. LandMark White director and Parramatta manager Ron Bransdon said the market for secondhand factories and warehouses offered with vacant possession was sluggish, while leasing was slow across the board. He said rents for secondhand stock were at the same levels as four to five years ago. Mr Bransdon said land prices seemed to be in the process of stabilising as it became uneconomic to speculatively develop new projects at current rental and construction cost levels. But according to Landmark White it's a different industrial landscape in Brisbane, where a shortage of properties, rising land costs and strong demand from owner-occupiers was driving demand for better quality accommodation. Associate director Peter Roberts said tenants, investors and owner-occupiers had shown a willingness to pay a premium in recognised locations. "Accommodation requirements are changing and there is a definite move for a higher quality product," he said. The Melbourne industrial market is being touted by Jones Lang LaSalle as the best opportunity for growth in the next 12 months as big institutional buyers continue to seek out opportunities. In March, Cromwell Diversified Property Trust paid $34 million to Challenger Financial Services for a Dalgety's Woolstore complex in Brooklyn, while in January Deutsche Industrial Trust paid $37.5 million to Salta Properties for a warehouse and office complex at Dandenong. Jones Lang LaSalle Victorian research director Nerida Conisbee said a stronger Australian dollar would be negative for manufacturing, but at the same time would be positive for the transport and storage sector as imports increased. Botany has shown a 40 per cent increase in land value as China's dominance of regional manufacturing has helped fuel demand for local distribution services. Local transport companies are set to benefit as closer and more sophisticated trade links develop between Australia and China. Ms Conisbee said there was positive interest in bulky goods, despite the slowing housing market, higher interest rates and tighter planning restrictions that would focus demand on new growth corridors. CPM Research director John Wakefield said falling industrial sales were against the backdrop of a patchy national commercial auction market, with only 550 auctions in the first four months of this year, compared with more than 700 in the equivalent period of 2003. Auction clearance rates also dropped from 70 per cent to 60 per cent, and consequently sales were down, from $630 million to $430 million. Reference: The Australian 
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