Briefing Perth Industrial July 2018

Transcription

1 Savills Research Western Australia Briefing Perth Industrial Highlights The Perth industrial market is firmly in recovery with green shoots emerging in regards to labour market job growth and business sentiment; There are signs of yield compression through the first quarter, indicative of continued investment demand for Prime grade assets in the Core and East precincts; In-demand land supply has mostly been concentrated in the Core and East precincts, with development land in Kenwick, Jandakot Airport, Perth Airport, and Hazelmere ready to proceed Prime Averages (Core Market) Latest 12mo Diff Outlook Rental N.F. ($/sq m) % Incentives (%) 12.5 n/c Yield Market (%) bps IRR (%) bps Capital Values ($/sq m) 1,500 (+3.4%) Land Values ($/sq m) 425 n/c There are a number of mandates being tabled in Perth, underpinned by strengthening outlooks in the resource sector, which may improve industrial leasing volumes and growth outlooks in the medium term.

2 Report Contents Executive Summary 2 Leasing Activity & Demand 3 Rents and Development 5 Sales Activity 6 Infrastructure & Outlook 8 Key Indicators 9 Key Contacts 10 Associate Director Research Katy Dean kdean@savills.com.au Research Analyst Research Nicholas Volk nvolk@savills.com.au For our latest national reports, visit savills.com.au/research To join Savills Research mailing list, please research@savills.com.au Executive Summary There are a number of green shoots emerging in regards to job growth, which bodes well for an improvement in demand metrics for the industrial and logistics sector in Perth over the coming year. Employment conditions have improved markedly since the end of 2016 and although coming off a low base, the growth rate for industrial sector job advertisements on a year-on-year basis is the highest nationally and the highest in Western Australia since BHP and its joint venture partners recently announced an investment of circa $4.7 billion to develop the South Flank Mine in the Pilbara. The project will be the single largest annual production iron ore mine that BHP has ever developed and is expected to generate 2,500 jobs during construction and about 600 operational roles once in operation. The announcement comes at a time where rivals FMG have committed $1.72 billion on a new mine in Eliwana, and Rio Tinto expected to approve construction of a new mine at Koodaideri by year end. On that note, the State Government has projected business investment to return to growth from 2019, supported predominantly by large iron ore and LNG projects, however growth is expected to be modest relative to the previous upswing, suggesting a return to a more normal and sustainable investment level. In-demand land supply has mostly been concentrated in the Core and East precincts, with development land in Kenwick, Jandakot Airport, Perth Airport, and Hazelmere ready to proceed. Maddington and Forrestfield have absorbed the majority of this recent demand from the pre-lease market in the interim. The current demand cycle has been shaped by renegotiations and renewals rather than large increases in demand for new space, which in turn, has reduced overall leasing volumes slightly in the short-term. However, enquiry for available space is increasing on the back of some businesses considering relocation and/or expansion plans again. Yields are still generally compressing, with signs of this occurring through the first quarter, indicative of continued investment demand predominantly for Prime grade assets in the Core and East precincts. In comparison to the previous 12 months, there has been a lower volume of large-scale asset transactions to buoy overall volumes, a trend which has also been seen nationally. Perth Markets Summary - Prime Warehouse Precincts* N.F. Rent ($/sq m) Market Yield (%) IRR (%) Cap. Value ($/sq m) Land Value ($/sq m) PER - Core 85 (-5.6%) 6.63 (-25 bps) 8.25 (-38 bps) 1,500 (+3.4%) 425 (n/c) PER East 80 (-5.9%) 7.13 (-50 bps) 8.63 (-50 bps) 1,400 (+16.7%) 388 (+23.0%) PER - North 85 (n/c) 7.25 (-63 bps) 8.25 (-50 bps) 1,300 (n/c) 388 (n/c) PER South 78 (n/c) 8.00 (n/c) 9.13 (n/c) 1,125 (n/c) 275 (n/c). NB: 12 month change shown in brackets; n/c = no change. * Savills metrics includes marketable commercial industrial buildings within defined precinct boundaries, generally inclusive of an improved building area of between 1,000 and 20,000 square metres. Land values reflect serviced & benched sites (3,000-5,000 sq m). savills.com.au/research 2

3 Leasing Activity & Demand In the 12 months to June 2018, Savills identified approximately 360,247 square metres of leasing activity (>1,000 square metres) in the Perth Industrial market. While below historical figures and the five year average, the average size per deal was recorded at 8,060 square metres, nearly double the figure 12 months prior, driven by large renewals and a contraction in the number of deals. By industry, Transport & Logistics accounted for the vast majority of leasing deals in the year to June 2018, accounting for 22,627 square metres or 62% of the market. Construction, Mining & Agriculture and Manufacturing & Engineering accounted for 12.5% and 10.9% respectively. Leases in the Core and South accounted for the majority of industrial stock reported leased in the 12 months to June 2018, accounting almost 85% of total volumes through the year. Direct - existing transactions, that is a new lease term in an existing/established building, accounted for the majority of reported industrial transactions in the 12 months to June 2018 (50.6%). Renewals accounted for the second largest proportion of deal activity by volume with 39.7%. Lease pre-commitments accounted for 12.0% of activity by volume. Leasing Activity by Precinct 700,000 PER Core PER East PER North PER South 600, , , , , ,000 Leasing Activity by Industry Type Transport & Logistics 221,627sqm 61.5% Construction, Mining & Agri 45,148sqm 12.5% Manuf/Engineering 39,414sqm 10.9% In the South, Tronox, a chemical business specialising in the mining and processing of minerals, has renewed terms for another two years for the 24,000 square metre warehouse they have occupied for many years at Russell Park Industrial Estate, Henderson. The facility services Tronox s refinery that is located in Kwinana Beach. Wholesale 32,598sqm 9.0% Undisclosed 21,460sqm 6.0% James Hardie Australia has recently leased 5 Harrison Road, Forrestfield. The 8,730 square metre warehouse facility was previously occupied by Yusen Logistics, who have since relocated to their newly constructed warehouse in Maddington. Historically, leasing activity has been the strongest in the Core precinct due to proximity to Perth Airport and key road links, providing direct access to the wider Perth Metropolitan area. Recent lease examples include Australian Contract Mining (ACM) and Fastway Couriers. ACM signed for 4,924 square metres over the two factories at 21 Bannister Road, Canning Vale, and Fastway leased 6,512 square metres at 294 Treasure Road, Welshpool. Leasing Activity by Lease Type 700,000 Direct Existing Precommit Renewal Sublease Leaseback 600, , , , , ,000 savills.com.au/research 3

4 Western Australia continues to hold the largest yearon-year growth rate nationally for industrial logistics job advertisements. Although coming off a low base relative to actual job advertised in the eastern states, the growth rate in job ad numbers for the state continues to surpass previous reports. The year-on-year growth rate continues to be the highest rate reported since 2012, when mining investment was peaking. Logistics Job Advertisements (12 mo Growth % to May-18) WA 30.3% NT 23.0% QLD 19.8% VIC 14.8% With 111,569 employed in the sector as at year end 2017, according to the Department of Mines, Industry Regulation and Safety, direct employment in Western Australia s mining sector is above the peak of 2012 (106,183). However, when looking at direct employment in the sector compared to 10-years ago, it is significantly higher. In 2007, approximately 65,366 people were employed in the sector. AUS ACT SA NSW TAS 3.9% 6.0% 8.3% 14.1% 12.8% Source: DOE DOE / Savills / Savills Research Research Top Leases (by Area Leased) Property Tenant Date Area Leased (sq m) Type Rent Term 310 Spearwood Ave, Bibra Lake AWH Oct-17 44,296 r (Lot 14) Sudlow Rd, Bibra Lake AWH Oct-17 39,485 r 62 8 Russell Park Industrial Estate, Henderson Tronox Nov-17 24,029 r n.a 2 Lots 11 & 152 Talbot Rd, Hazelmere Toll Oct-17 20,000 p n.a n.a & Gauge Cct, Canning Vale Bevchain Oct-17 19,000 r n.a Belmont Ave, Kewdale Winning Appliances Apr-18 14,810 p Modal Cres, Canning Vale Cope Sensitive Freight Oct-17 9,619 d-e Harrison Rd, Forrestfield James Hardie May-18 8,730 d-e Mulgul Rd, Malaga Talis Consultants Dec-17 8,615 d-e n.a 4 Lot 5 Colquhoun Rd, Perth Airport Roy Hill Oct-17 8,431 d-e Chisholm Cres, Kewdale Austin Engineering Apr-18 8,425 r Modal Cres, Canning Vale Silk Logistics Sep-17 8,161 d-e & 1222 Rockingham Rd, Naval Base Netline Holdings Pty Ltd Nov-17 7,685 d-e Abernethy Rd, Kewdale Star Track Aug-17 6,593 d-e Treasure Rd, Welshpool Fastway Couriers Jan-18 6,512 d-e 61 7 ; Leasing Types: p = Pre-commitment, d-n = Direct New, d-e = Direct Existing, pl = Pre-Lease, s = Sub-Lease, r = Renewal savills.com.au/research 4

5 Rents Average Prime Net Face Rents by Precinct As at June 2018, Prime industrial net face rents typically range from $70 to $100 per square metre per annum in the Core and North, $60 and $95 per square metre per annum in the South, and $70 to $90 per square metre per annum in the East. The market has been rebasing its rental levels since the peak of the resources boom in 2012/13. While both average Prime and Secondary grade rents have declined between 10 and 15% between 2013 and early 2016, the last 12 months have shown some signs that rents are close to stabilising. The trend suggests recovery is underway and while this is yet to translate into higher leasing volumes over the last 12 months, there are indications that tenant demand is gaining some momentum on the back of an improved business sentiment and job growth. PER Core 130 PER North PER East PER South Supply / Industrial Development The redevelopment/refurbishment of land and/or older style properties within the traditional core areas such as Welshpool and Kewdale has become a theme in the market as landlords seek to upgrade their assets to secure tenants. Winning Appliances has recently pre-committed to lease a warehouse on Belmont Avenue that will be redeveloped to accommodate their business, while owner occupier Kent Removals & Storage has moved into their newly built facility in Welshpool. In terms of recent development, a new circa 3,900 square metre warehouse located next to Bunnings Maddington distribution centre has been completed to house manufacturing company Makita, along with new adjoining warehouses for Frucor (3,300sq m) and Yusen Logistics (12,915sq m). In-demand land supply is likely to remain concentrated in the East where private development ready land is available. Kenwick, in particular, will potentially become a significant component of this demand due to plans to build a major new industrial estate adjoining the Midland to Kwinana/Fremantle freight railway. In the North, development ready land is available in areas such as Wangara and Gnangara. Additionally, with Austral Bricks recently selling its former Brickworks site in Malaga, it is expected that the 11 hectare site will be sold off as subdivision, increasing long-term options. While there are a number of macro indicators still undergoing recovery, there are encouraging signs that major leasing activity in Perth is turning a corner with a number of active tenant mandates being tabled for timing in 2018/19. Logos circa 20,000 square metre warehousing and logistics in Hazelmere has been approved, securing precommitment for Toll. Completed Development and Pipeline (sq m) 350,000 Completed Under Construction 300, , , , ,000 50,000 0 Source: Cordell/Savills Research NB: includes new/addition speculative, precommitment, owner occupier development types. savills.com.au/research 5

6 Sales Activity Savills identified approximately $410 million worth of transactions in the 12 months to June This is below the $615 million identified in the previous year, and just below the five-year average of $495 million. In October 2017, Ascot Capital, a Western Australian developer and syndicator, acquired Cope Sensitive Freight s industrial portfolio on a sale and leaseback arrangement for $31.5 million. The portfolio included seven assets across Australia, the largest being 15 Modal Crescent in Canning Vale on an apportioned basis of $15.2 million. Ascot Capital also picked up three separate fully leased properties in Wangara for more than $25 million. Warrington Property has divested three industrial assets in Perth over the last 12 months, including 92 Robinson Avenue, Belmont ($11.2m), 13 Modal Crescent, Canning Vale ($10.1m) and more recently, 100 Chisholm Crescent, Kewdale ($14.5m). 92 Robinson Ave, Belmont was acquired by Centuria for $11.20 million in August 2017 on a passing yield of 11.01%. The property is leased to Toll Transport after being refurbished in In November 2017, Sentinel Property Group acquired 13 Modal Crescent, Canning Vale for $10.10 million on a reported yield of 9.90%. The property is fully leased to Timberlink, a subsidiary of New Forests. The latest transaction sees 100 Chisholm Crescent, Kewdale selling for $14.5 million on a market yield of 6.99% to City of Subiaco. Chisholm Crescent is leased to Austin Engineering, who recently renewed terms. Sales Activity by Price $800m $5m $50m $50m $100m >$100m $700m $600m $500m $400m $300m $200m $100m $0m Vendor & Purchaser Composition Vendors Purchasers 0% 20% 40% 60% 80% 100% Fund Trust Developer Owner Occupier Government Syndicate Foreign Investor Private Investor Other Qualitas, a private investment manager, announced their acquisition of the Allied Pinnacle property portfolio in April 2018 for approximately $400 million. Allied Pinnacle will maintain control of the sites through 30-year leaseback arrangement. The portfolio consisted of 10 properties across Australia, including one asset in Western Australia, 111 Stirling Highway, North Fremantle. In May 2018, it was confirmed that Perdaman Industries had sold 7 Ashby Close, Forrestfield off-market for $20.5 million to the Lester Group, a local syndicator. The circa 11,000 square metre facility was built approximately four years ago and is leased by ASCO Transport & Logistics on a long term lease. Perdaman Industries originally acquired the property in 2016 for $18.4 million. Yield Spread to Bond & IRR Perth 10yr Bond Rate 12% Average Prime IRR 10% 8% 6% 4% 2% Average Prime Yield % Source: RBA/ Savills Research savills.com.au/research 6

7 By precinct, average Prime yields in Perth Core range between 6.00% and 7.25%, compared to 6.50% to 8.00% in Perth North. It is noted that there are recent examples of properties in the North in the sub $20 million market with long WALEs trading on market yields of between 6.25% and 6.50%. Capital values have generally held stable since mid However, investment volumes were relatively buoyant through 2017 and capital is still seeking investment opportunities, particularly in the Core and East precincts. Prime Average Market Yield by Precinct 10.0 PER Core PER East PER North PER South Top Sales Property Type Price ($m) Date GLA Yield Type $/sq m 40 Solomon Rd, Jandakot* Cold Storage Dec-17 18,222 n.a n.a 2, (Lot 14) Sudlow Rd, Bibra Lake Warehouse Oct-17 39, e Kurnall Rd, Welshpool* Cold Storage Dec-17 9,047 n.a n.a 2, Sheffield Rd, Welshpool* Warehouse Sep-17 19, e 1,318 7 Ashby Close, Forrestfield Warehouse May-18 9, e 2, Bonner Dr, Malaga Warehouse Aug-17 25,680 n.a dev Casella Pl, Kewdale Factory Nov-17 3,515 n.a dev 4, Destiny Way, Wangara Warehouse Sep-17 4, e 3, Chisholm Cres, Kewdale Warehouse Jun-18 8, e 1, Stirling Hwy, North Fremantle* Factory Jan-18 9, e 1, Modal Cres, Canning Vale Warehouse Oct-17 9, e 1, Collier Rd, Bayswater Factory Nov-17 8,911 n.a n.a 1, Robinson Ave, Belmont Warehouse Aug-17 8, e 1, Jackson St, Bassendean Warehouse Oct-17 10,830 n.a n.a 942 ; i = Initial, r = Reported, e = Equated, v = Vacant, dev = development; *part of portfolio savills.com.au/research 7

8 Infrastructure The $2.2 billion Forrestfield-Airport Link is a new train line that will open a new rail corridor to Perth s eastern suburbs and connect the city to Perth Airport by rail. Three new stations will be built, including the domestic and international terminals and one at Forrestfield. Constructing works are advancing quickly, with works into the Airport Central Station breaking ground last month and road works continuing at the Forrestfield site. The first train expected to be running by The $1.12 billion NorthLink WA is being constructed in three sections, with all stages integral to improving freight efficiency between Perth metropolitan areas and the northwest of Australia. Supporting more than 1,000 jobs during construction, Northlink WA aims reduce travel times and potentially open up access to previously underutilised employment land. Works for Stage Three (Northern section) started in November 2017, with completion of the whole project anticipated by mid Key Infrastructure Project Summary - Perth Project Est. Cost Status Completion NorthLink WA $1.1bn U/C 2019 Forrestfield-Airport Link $2.2bn U/C 2020 Roe Highway & Kalamunda Road Interchange Armadale Road upgrade $86m Approved 2020 $145m Approved 2021 Source: MainRoads WA, Savills Research. U/C = Under Construction; The Federal Government has allocated $5.4 billion infrastructure package for Western Australia, delivering $3.2 billion in new funding, including $1.67 billion on major road projects, and $1.05 billion on the State Government s Metronet. The package also includes $500 million towards the Morley-Ellenbrook rail line. Outlook Overall, sentiment has improved recently on the back of a number improvements in the local economy, including job advertisement growth. While this has yet to translate into significant changes in the unemployment rate, the foundation is there for future growth, particularly in the logistics sector which may lead to an increase in demand for warehouse and storage space predominantly in those precincts with strategic access to those key transport routes in the Core and East, and to some extent in the South. Speculative development has been limited, however, the market may start to see a rise in pre-lease construction activity. It is understood that a number of mandates exists and firms are reviewing upcoming requirements for options over the coming 12 months. In the short-term, we may begin to see an increase in the refurbishment or repositioning of older-style facilities due to the shortage of Prime quality facilities in the Core and East as owners look to reposition assets on the back of a brighter outlook for jobs growth and business climate. While there has been limited large-scale investment activity recently, domestic and offshore capital is still seeking quality Prime assets with good lease covenants in Perth, which may provide a boost to volumes in the second half of the year. Yield compression remains evident in most markets, a trend which may continue in the short-term. We do note that there are examples of Prime assets with strong lease covenants trading on market yields closer to 6.00%, below the average Prime yield range. savills.com.au/research 8

9 Savills Research Briefing Notes Perth Industrial Perth Industrial Precincts Muchea 60 Bullsbrook Neerabup 85 NorthLink 95 Joondalup NORTH Wangara n Hwy 2 Great North er Landsdale wy ll F 53 che Mit 60 Balcatta 76 Reid Hwy Malaga Osborne Park Bassendean Hazelmere Great Eastern Hwy Bayswater South Guildford 75 Perth CBD Perth Airport Belmont 94 Kewdale freight terminal 5 Welshpool CORE 30 O Connor e Ro 13 Hwy 36 wy Kenwick in H 7 Forrestfield 4 k Ton 26 6 Fremantle 55 Kewdale EAST Canning Vale Jandakot Airport Bibra Lake Jandakot Cockburn Central Forrestdale LEGEND 31 SOUTH Naval Base 2 4 North 21 Core East Latitude32 21 South na Fwy 20 North Kw ina Rockingham 40 Armadale Henderson Kwinana 41 Maddington 22 savills.com.au/research 9

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11 Perth Industrial Key Indicators (Q2-2018) Perth Core (Belmont, Canning Vale, Kewdale, Welshpool, Jandakot Airport, Perth Airport) Prime Secondary Low High Low High Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 1,000 2, ,300 Land Values 3,000-5,000 sq m ($/sq m) Land Values 10,000-50,000 sq m ($/sq m) Land Values 10 ha and above ($/sq m) 350 (low) 500 (high) 275 (low) 400 (high) 200 (low) 325 (high) Perth North (Balcatta, Joondalup, Malaga, Wangara, Landsdale) Prime Secondary Low High Low High Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 900 1, ,100 Land Values 3,000-5,000 sq m ($/sq m) Land Values 10,000-50,000 sq m ($/sq m) Land Values 10 ha and above ($/sq m) 275 (low) 500 (high) 200 (low) 400 (high) 100 (low) 325 (high) Perth East (Kenwick, Forrestfield, Maddington, Hazelmere, Bayswater, Bassendean, South Guildford) Prime Secondary Low High Low High Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 800 2, ,300 Land Values 3,000-5,000 sq m ($/sq m) Land Values 10,000-50,000 sq m ($/sq m) Land Values 10 ha and above ($/sq m) 300 (low) 475 (high) 175 (low) 325 (high) 150 (low) 250 (high) savills.com.au/research 11

12 Perth South (Forrestdale, Bibra Lake, Henderson, Jandakot, Kwinana, Naval Base, O Connor, Rockingham, Latitude32) Prime Secondary Low High Low High Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 750 1, Land Values 3,000-5,000 sq m ($/sq m) Land Values 10 ha and above ($/sq m) Land Values 10 ha and above ($/sq m) 150 (low) 400 (high) 125 (low) 300 (high) 100 (low) 200 (high) Key State Industrial Contacts Research Katy Dean +61 (0) kdean@savills.com.au Industrial Sales & Leasing James Condon +61 (0) jcondon@savills.com.au Industrial Sales & Leasing Matthew Hopkins +61 (0) mhopkins@savills.com.au Research Nicholas Volk +61 (0) nvolk@savills.com.au Valuations Mark Foster-Key +61 (0) mfosterkey@savills.com.au Asset Management Jason Ridge +61 (0) jridge@savills.com.au Project Management Graham Nash +61 (0) gnash@savills.com.au The Savills Research & Consultancy team has years of experience, and is supported by our extensive agency, property management and valuation professionals. For national-level consultancy or subscription requirements please contact: Capital Strategy & Research Chris Freeman +61 (0) cfreeman@savills.com.au Savills is a leading global property service provider listed on the London Stock Exchange. Trusted since 1855, we have extensive experience across the Asia Pacific, with over 50 offices, and in Australia, we have over 800 staff focused on meeting all your property needs. This information is general information only and is subject to change without notice. No representations or warranties of any nature whatsoever are given, intended or implied. Savills will not be liable for any omissions or errors. Savills will not be liable, including for negligence, for any direct, indirect, special, incidental or consequential losses or damages arising out of our in any way connected with use of any of this information. This information does not form part of or constitute an offer or contract. You should rely on your own enquiries about the accuracy of any information or materials. All images are only for illustrative purposes. This information must not be copied, reproduced or distributed without the prior written consent of Savills. savills.com.au/research 12