Industrial property might: big portfolio trades to reshape industry
Billions of dollars are being sought to back a new wave of logistics centres as big companies demand the new complexes as they shake up their supply chains.
Industrial portfolio trades have surged back onto the agenda of major property groups, with top operators like Charter Hall, Aliro and Growthpoint undertaking moves to bring fresh capital into their operations.
The big industrial groups are looking to capitalise on global interest in Australia’s tight industrial and logistics markets, with equity raisings, recapitalisations and sales under consideration as billions of assets come into play.
The market has been ignited by sector leader Goodman’s success in striking a $780m portfolio deal with global giant Barings and more deals are in train that will see billions of dollars pour into the country’s industrial and logistics sectors, backing a new wave of modern warehouse and logistics centres.
The interest in the area has also seen portfolios assembled last year come back into play, and others are also being readied for the market.
Big managers are being driven by the need to keep recycling capital into the massive projects which large companies are demanding as they reshape their supply chains.
Many are looking to sell stakes in their existing assets to fund developments and as they look for ways to retain control of the warehouses they undertook earlier in the cycle.
One of the largest moves to introduce fresh capital is by Aliro’s core plus industrial vehicle which has grown to a $1.4bn portfolio which, with developments, will hit $2.1bn, once they are complete.
It owns investment-grade warehouses along the eastern seaboard and has assets in key markets, with a focus on Sydney and Melbourne near infrastructure and road networks. The fund pursues a core-plus strategy and about 70 per cent of the equity is in completed projects and about 30 per cent in developments.
Although the firm declined to comment, the fund was set up in 2018 to pursue an open-ended strategy with a liquidity review every five years, opening the way for new investors.
Listed groups are also active.
Industry players said that the Charter Hall Prime Industrial Fund – which has about $11.8bn of assets under management in major Australian capital cities – was also looking at ways of bringing in fresh investment.
The manager has not revealed its plans, but it sports an extensive development pipeline, which Charter Hall has secured due to its deep ties across corporate Australia.
The group was seeking about $450m, mainly for stakes in properties which it would retain management, sources said.
The listed Growthpoint Properties Australia, where Ross Lees has just started as chief executive, directly owns and manages about 30 industrial properties and is looking to bring on a $300m partner.
Growthpoint’s industrial properties are also near key logistics hubs and population centres across Melbourne, Sydney, Brisbane, Adelaide and Perth and the $1.6bn portfolio represents about 36 per cent of its holdings.
Offshore players are also active.
US property giant Greystar Real Estate Partners, which came into the market in 2022 with a series of purchases that gave it a foothold of more than $500m of projects, is also believed to be seeking to recapitalise and could even exit the sector once its projects are completed.
Greystar has properties in South Granville in Sydney’s Central West and Melbourne’s West Footscray, as well as in Brisbane but declined to comment on its plans.
Singaporean group Frasers – one of the top developers in the sector – is also considering selling off a portfolio of about eight industrial assets split between Sydney and Melbourne. But these assets are not expected to hit until later this year.
Some locals are also opting for outright sales.
Superannuation fund-backed manager ISPT has also put three super prime assets to market in Sydney and Brisbane on the block via JLL and CBRE with price hopes of more than $250m. ISPT’s properties are on Kookaburra Rd North in Prestons, NSW, South Pine Rd in Brendale, Queensland, and Interchange Industrial Estate in Narangba, Queensland.
CBRE’s executive director of logistics in APAC, Chris O’Brien, said properties in crucial logistics hubs were in high demand and were a compelling investment opportunity for local and international investors.
JLL head of logistics and industrial, capital markets, Australia, Ben Hegerty, said investor demand for logistics and industrial assets in 2023 topped office sector volumes for the second time in 15 years, with industrial at 34 per cent of total activity last year, up from 29 per cent in 2022.
“There is no doubt rental growth has been an important incentive for developers to dust off their plans, but it has also been important for investors as it has created strong positive rental reversionary potential in many markets,” he said.
“We are observing a huge wave of capital searching for logistics and industrial product, driven by an increased understanding of the long-term structural tailwinds driving growth in the sector and with forecast stability in debt markets.”
The logistics and industrial sector recorded $6.2bn in direct property transaction volumes in 2023, slightly ahead of the 15-year average of $5.7bn, JLL Research said. And there is optimism that buyers are willing to pay up for the best assets.
Despite stubbornly high interest rates and the uncertain macroeconomic outlook, investor capital is already chasing Australian logistics and industrial assets.
In the first quarter, $2.47bn of logistics and industrial market deals were struck, with developers leading the way.
Melbourne was bolstered by UniSuper’s acquisition of a 66ha site in Deer Park in Melbourne’s west precinct. The fund paid Orica $260m for the land. ESR and Frasers also teamed to buy a Cranbourne site from Salta Properties for $230m.
Sydney was also driven by land sales. Notably, ISPT and UniSuper acquired Burra Park – a 280ha in the Western Sydney Aerotropolis – from Roberts Jones Funds Management for $862.4m.
CBRE also expects investment volumes to surpass the level recorded in 2023 but noted there had been a significant increase in capital costs off the back of historic lows, and it expects some further cap rate expansion of around 25 basis points over the next six months.
The big portfolios are likely to drive the next wave of deals, despite the cautions emerging about softer demand for space for big boxes in outer areas of some cities. The gross take-up of space in the first quarter of 2024 was the lowest quarterly take-up recorded since 2015 and there is rising sublease space. But large institutions remain keen to back the next generation of warehousing that big companies are demanding.
The managers are also cashing in on strong demand from local and global institutions for industrial and logistics property as strong rents come through – albeit at a more normal pace – and large institutions get set for next cycle.
With the top managers already moving, and a series of smaller players also expected to follow suit, commercial real estate could again become one of the most active investment classes.
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