Australia looks likely to be the major beneficiary of booming investment in the logistics and industrial real estate market, according to a new report by JLL.
Driven by the need for vast warehouse spaces for things like pure-play e-commerce, the logistics and industrial market has broken investment records nationally over the past 12 months, JLL notes.
They predict that trend is set to continue with expectations there will be a further acceleration in transaction activity over the next five years.
JLL’s forecasts indicate logistics and industrial transaction volumes in the Asia Pacific region will rise to $50 to 60 billion between 2023 and 2025 from US$25 to 30 billion in 2019 to 2020, with Australia proving a key market.
“Across the Asia Pacific region, and globally, we are seeing major institutional investors looking to increase their capital allocation to the logistics and industrial sector,” JLL’s Head of Capital Markets, Industrial & Logistics – Australia, Tony Iuliano said.
“Australia’s robust investment fundamentals, including a highly transparent market, stable income collection and a strong short-term rental growth outlook, are encouraging more and more groups to look at deploying across our key markets nationally.
“The challenges that most of these investors are facing at the moment is getting access to product that is of sufficient scale to meet their requirements.
“Major portfolios like Milestone take time and expertise to compile, and when significant opportunities are presented to the market they are always hotly contested.”
The competition for large, prime assets in Australia has seen yields across most core markets compress significantly over the past 12 months.
According to JLL Research, prime market yields have compressed by up to 100 basis points in parts of both Melbourne and Sydney over the year to Q2, 2021.
JLL’s Senior Director, Industrial Research, Annabel McFarlane said the level of yield compression that has been recorded in Sydney and Melbourne over the past 12 months had been unprecedented.
“While both markets have been coming off a higher base than most established global cities, we are now seeing some market equivalent yields moving into the 3’s,” she said.
“This has exclusively been the territory of major population centres like New York (3.77 per cent), Paris (3.60 per cent) and London (3.25 per cent).
“However, with expectations of further compression over the balance of 2021, it demonstrates that Australia’s logistics and industrial investment market has rapidly increased in relevance on the global stage.”