Industrial property the strongest performer in 2022

Industrial assets have continued their charmed run of recent years and look set to finish 2022 as the top-performing commercial asset according to an expert.

Ray White Commercial Head of Research Vanessa Rader said after a tough year for many asset classes on the back of higher borrowing costs, industrial property has performed best.

“Demand has been growing off the back of logistics, distribution and transport, particularly last mile solutions, together with the growth in small business and local manufacturing,” Ms Rader said.

“The increased demand by users, coupled with limited supply additions over the past few years, has resulted in vacancies across the country in the sub one per cent range, therefore, face rents have seen outstanding levels of increase. 

“Furthermore, with little supply on the horizon and many markets hampered by tight available developable land, the future for land values appears favourable.” 

Ms Rader said the supply and demand imbalance would likely keep prices strong.

“While yields are unlikely to sustain their lows given the pure cost of finance, the longer term prospect of high occupancy and increased returns will see good results for industrial owners,” she said.

“Those assets well located on major transport nodes or with development potential are likely to continue to enjoy the benefits of this asset class in years to come.”

According to Ms Rader, medical assets have also proven to be strong performers in 2022.

“The medical asset class was gaining momentum well before COVID-19 hit, which shone a light on additional needs in pathology services, GPs and hospital facilities,” she said.

“The medical sector has been evolving over the years. Once considered a segment which catered for the very young or very old, we are seeing greater medical needs across all demographics.”

Ms Rader said specialised services had grown in popularity across the once forgotten age group, particularly in sports medicine, preventative care, cosmetic services, as well as holistic or alternative medicines. 

“With increased demand has come improvements in leasing rates and, with limited purpose-built facilities, the readaptation of other assets such as retail to cater for the growing demand,” she said.

“Often secured by long leases with fixed increases, these assets are kept to a high standard given their medical use, which is attractive to the investor looking for a secure, growing income stream. 

“While yields will see some movement off the lows achieved last year, the long-term attraction of medical facilities cannot be underestimated particularly as our population continues to grow.”

Childcare has been one property type which has become attractive over the past few years, according to Ms Rader.

“The ‘set and forget’ nature of the asset assured investors a secure, long-term income stream and its affordable price point making it attainable for a range of buyers,” she said.

“While yields have been at a low rate for a long time, there is expectation these will tick up given the increased cost of finance.

“Despite this, the increases in government subsidies anticipated will do much to further spur on this sector in terms of demand and likely growth in returns.”

Ms Rader said as an asset class with high occupancy, assets which have the ability to be redeveloped or extended will benefit from an uplift in return with those well located in metropolitan areas likely to hold their value over regional assets. 

“Remembering commercial property is a long-term asset, the underlying land value for many childcare assets is another positive for this asset class,” she said.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.