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‘Lifestyle industrial’ the latest trend in Australian real estate market

The days of industrial precincts being avoidable areas for residential property are over, with “lifestyle industrial” flagged as the standout new trend in Australia’s real estate market.

In its commercial Month in Review for September, Herron Todd White said industrial areas were no longer dominated by smash repair shops and steel fabrication operations.

Instead, lifestyle amenities such as microbreweries, cafes, artisan bakeries, climbing gyms and basketball courts were popping up and making the precincts a lot more desirable to live in.

Herron Todd White Sunshine Coast Director Chris McKillop said “lifestyle industrial” was changing the face of many suburbs and creating alternative living and working environments.

“Moffat Beach, near Caloundra, is a good example of the way industrial areas are being transformed,” he said.

“It has an established industrial precinct really close to high quality, million-dollar-plus residential holdings.

“It’s also where you can jump on a bike and be at the beach in three minutes. That industrial area now houses a great restaurant and a number of cafes – it’s a real destination precinct for locals and tourists.”

The trend of caretaker units is also growing, which is where owners live upstairs and use warehouse space downstairs for their business.

Mr McKillop said investors were also starting to get in on the action, attracted by comparatively modest prices and solid returns.

“They can buy these investments for sub-$500,000 and they’ll get a 5 per cent return, because the tenant typically pays all of the outgoings,” he said.

“There’s definitely more investors starting to creep into the space now.”

Sydney

There has been consistent growth in Sydney’s commercial market in 2021, particularly in industrial precincts closest to major infrastructure.

Locations such as Silverwater are leading the way, with an older, established unit selling for $6000 per square metre recently.

In the outer and central western regions, smaller strata developments have seen a resurgence, particularly in suburbs such as Penrith, Dural, Mount Druitt and Chullora.

Rates of more than $5000 per square metre have been achieved in a new Chullora development at 40 Anzac St.

Herron Todd White Commercial Director Angeline Mann said yields of 3 per cent to 4.5 per cent were being achieved, but landlords were being more selective with their tenancy choices.

“Although we have heard from agents that leasing is becoming easier, many prospective tenants are getting knocked back, particularly automotive users and gyms, with owners favouring less intrusive or what some may view as more stable tenants,” she said.

Melbourne

Small-scale industrial unit development has seen significant growth in the past couple of years in Melbourne, especially in the western and northern suburbs.

Herron Todd White Valuer James Feeny said capital values had soared in Epping due to its proximity to the Melbourne Fruit and Vegetable Market and major roadways.

“Over the past 12 to 18 months we have seen the sub-500sq m industrial market increase from the $1000 per square metre of building area range to between $2000 and $2500 per square metre of building area,” he said.

“Developers have also struggled to keep pace with demand from logistics and e-commerce occupiers and given the scarcity of available serviced industrial land within proximity of major transport linkages, we have seen strong upward pressure on this market in particular.”

Brisbane 

Brisbane’s industrial market continues to gather momentum, with a shortage of stock pushing developers to start small and large-scale projects.

Brisbane’s premier industrial precinct, Eagle Farm, has seen the least development due to its land shortfall, but has experienced tightening vacancy rates due to its prime location.

This has driven developers to seek land in areas such as Pinkenba, Morningside, Murarrie and Lytton, where small to medium development is increasing. 

Land rates have also been strong in Pinkenba where unimproved sites have been attracting $400 to $600 per square metre compared to $200 to $400 in Brendale and North Lakes. 

“Once again, the industrial sector has proven to be the strongest performer across all asset classes with both developers and investors showing sustained levels of confidence in this resilient industrial market for the foreseeable future,” Herron Todd White Director Alistair Weir said.

“Much like the investment market, the development and construction sectors are not expected to see a diminution in activity while the perceived demand for the finished product remains strong.”

Adelaide

Industrial property across South Australia has proved a hot commodity in the past year, particularly tenanted assets.

Herron Todd White Commercial Director Chris Winter said one example of this was in Para Hills, where an industrial asset leased to the AMA group on an eight-year lease sold for $5.38 million at auction, which was a yield of 4.09 per cent.

He said before March 2021 investors were purchasing at sub 6 per cent yields but increasing prices had seen this figure drop to below 5 per cent. 

Land values have also been creeping up in the industrial market, and agents are reporting strong leasing demand and low vacancy rates across the sector.

Perth

Herron Todd White Director Greg Lamborn said the industrial market in Western Australia had left the office and retail asset classes in its wake. 

New construction has been limited with high take-up rates of existing space, which had previously sat vacant.

But Mr Lamborn said construction had picked up in some areas, where land allowed, such as Bayswater and Kenwick.

“The vast majority of new development around Perth has been on a design and construct arrangement,” he said.

“Tenants enter into such agreements with builders often at inflated rental rates negotiated on a formulaic basis as a percentage of total construction costs as opposed to market fundamentals.”

He said infrastructure projects like the NorthLink WA has also triggered construction activity in the industrial sector.

Darwin

Darwin’s industrial market hasn’t experienced a surge in prices compared to the residential property market.

Herron Todd White Director Terry Roth said there was an oversupply of industrial accommodation, particularly older properties in established areas such as Winnellie and Berrimah.

“This will need to be absorbed by the market, most likely as a result of a major employment project, before any change in values is evident,” he said.

Canberra

Canberra’s industrial market is concentrated in Mitchell in the north, Hume in the south and Fyshwick near the airport.

Valuer Lucy Xu said Fyshwick was still the most popular but activity in Mitchell was growing given Gungahlin’s population growth.

She said the ACT Government controlled most land releases through the Indicative Land Release Program with almost 60,000 square metres of land due to be released in coming years. 

“Due to limited new land supply, good quality warehouses and distribution-type complexes with semi and B-double access remain hard to find,” Ms Xu said.

“Across the market, rents for large, industrial warehouses vary from approximately $150 to $190 per square metre gross, relative to size and quality. 

“New purpose-built developments demonstrate higher market rents, relative to the build specification, while medium sized tenancies are seeing rents of $185 to $250 per square metre gross.”

Rural market

Online auctions have cemented as an acceptable way of transacting property in regional and rural areas as a result of the global pandemic.

Valuer Andrew Garnsey said one recent example of this in southern NSW was the sale of Old Moorlands, near Wagga, through an online bidding platform. 

The 410ha property included a six-stand shearing shed, machinery shed, cattle yards and 200 tonnes of grain storage, and sold for $6.24 million after almost 60 bids.

“Historically, properties of similar size and location used to present an opportunity for younger or first-time farming operators to enter the market, however as land values have increased this is becoming increasingly difficult given the amount of equity required to secure finance for both the acquisition and ongoing working capital,” Mr Garnsey said.

“The market is now mostly comprised of existing operators looking to expand, often for the next generation, by leveraging off increased equity levels and favourable income returns given back-to-back above average seasons in 2020/21 and strong commodity prices.”

In the Mildura area, the market for cropping land is heated and AWARE Super has recently announced it will sell its large-scale irrigated farming portfolio in Northern Victoria.

Herron Todd White Director Graeme Whyte said that decision was good timing, with sale prices in recent months exceeding expectations, often by more than 20 per cent. 

“Most sales have involved smaller parcels which have been snapped up by local farmers, many of whom are suffering from a fear of missing out,” he said.

“Low interest rates are also fuelling these decisions.”

There has also been a high level of activity in the NSW Central Tablelands where a diverse range of entry-level properties have been for sale between $1.5 million and $4 million. 

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Kylie Dulhunty

Kylie Dulhunty is the Deputy Editor at Elite Agent.