Industrial property has been hot over the past few years, however, as alternative assets continue to gain attention and office and retail bounce back, demand will likely slow down, according to an expert.
Ray White Commercial Head of Research Vanessa Rader said in the short term, industrial assets were expected to remain one of the commercial market’s favourites, given its improved sophistication and return, ahead of historically attractive office and retail assets.
“Investment into industrial peaked in 2021 where close to $32 billion changed hands across the country, representing 32.4 per cent of all commercial sales that year,” Ms Rader said.
“While the low interest rates and buyers’ desire to diversify their investment portfolios drove investment into commercial assets, the attractiveness of industrial was clear across all price points.”
Ms Rader said while investment peaked in 2021 at nearly one-third of all sales, this rate had continued to fall to now represent 27.1 per cent in the first three quarters of 2023.
While total investment into commercial property has fallen more recently, industrial transactional activity this year has already amassed $9.7 billion.
Ms Rader said investment in industrial assets continued to be led by NSW and QLD, with markets such as Western Australia and South Australia seeing increased volumes during Covid as many investors moved up the risk curve to smaller markets.
“More recently, this trend has dissipated as investors have been more considered moving back to key growth nodes,” she said.
She said with this change in investment activity, there has also been some change in the buyer and seller profile for industrial in 2023.
“Private investors have been the largest players in the industrial space, and continue to increase their holdings, with net acquisitions remaining positive despite accounting for more than half of all sales,” Ms Rader said.
“Similarly, we have seen greater net investment by offshore capital and institutional investors, however, the largest movement has been by listed funds and REITs.
“This buyer type has continued to sell down their industrial assets, being vendor to 21.5 per cent of all sales with a mismatch in buyer activity representing just seven per cent.”
Ms Rader said as the proportion of industrial investment fell, buyers were considering other types of commercial asset types.
“Traditional investment classes such as office and retail also are seeing their investment levels reduce, making way for buyers to consider alternatives,” she said.
“This year we have seen a continued push into quasi-residential assets such as student accommodation, build-to-rent and development sites, capitalising on demand for housing, while strong tourism results have seen hotel activity grow.
“Also, off the back of our rapidly changing population demographics, demand has increased for assets such as medical, childcare and aged-care facilities.“
Ms Rader said the changing landscape was expected to continue across commercial investment given sentiment shifts towards the future of assets such as office and retail and the higher returns on offer.
“Competition for alternative asset classes, particularly those tied to our rapidly growing population and changing demography may move towards being the next commercial investor favourite,” she said.