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Private investors, syndicates and owner occupiers have returned to the market, lured by a significant repricing of industrial property, which has fallen in value by an average of 21% from its 2007 peak. So investors are now actively looking to buy industrial property again.
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After 18 months of economic uncertainty, there have been some recent positive fundamental indicators which suggest that there is now a clearer picture of the short term direction of the industrial sector.
Recently there has been a marked increase in purchasing activity mainly by counter-cyclical investors looking to buy industrial property at what they believe to be the bottom of the market.
After a record year of new supply in 2008, new construction has since fallen by over 40% with supply this year expected to be well below the historic five-year average. There is very little supply being constructed in Sydney that does not have tenant pre-commitment and next year there will be even less new industrial property developed. This is seen as a positive indicator for investors looking to buy industrial property.
Another positive indicator for investors looking to buy industrial property is that the leasing market has remained relatively active and the rapid decline in new development may help boost demand for existing industrial property.
Housing construction is forecast to increase along with the demand for imports and this will have a positive flow-on effect for the industrial sector and is providing further confidence and reasons for investors to buy industrial property.
Investors looking to buy industrial property have also appreciated the strong gains in the Manufacturing Index over May and June, after reaching a low in April. This reflects a return of confidence in this sector which is good for the industrial property market.
The industrial market has moved back to a position of true risk and reward metrics. Industrial property in non-core locations, those with capital expenditure issues and those with tenant covenant or lease expiry risk are been heavily discounted by investors looking to buy industrial property.
Market experts are tipping a marked increase in business demand for industrial space from mid 2010 and throughout 2011 which is good news for investors looking to buy industrial property.
What returns are available for investors looking to buy industrial property?
Due to the recent repricing of values in the industrial sector, the low interest rate environment and the forecast of yields to remain stable, investors looking to buy industrial property now have an opportunistic time to take advantage of some excellent value deals.
Yields on prime industrial property with good leases have firmed over the last couple of months.
The yield to interest spread remains positive, which means that investors now have the opportunity to buy industrial property which will have a positive cash flow.
Sydney yields; Prime 8% to 9%, Secondary 8.5% to 10%
Brisbane yields; Prime 8.25% to 9.25%, Secondary 9% to 10.75%
Melbourne yields; Prime 8% to 9.25%, Secondary 9.5% to 11%
Refer to a recent case study below where one of our clients used our commercial buyers agent services to help them buy industrial property in Sydney.
Strong Negotiation Strategy Secures a Massive "$400,000" Discount
