LMW Link. Greater Brisbane Industrial ~ September For more information. Brisbane Industrial Indicators

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1 Brisbane Industrial Indicators Indicator GSP growth QLD +1.7% +3.1% Industrial Production QLD -1.4% +4.7% International Exports QLD +13.9% +11.1% Q Forecast Q Average Prime Grade Net Face Rent ($/sq m) $120 $120 Average Secondary Grade Net Face Rent ($/sq m) $85 $85 Average Prime Grade Yield 6.75% 6.50% Average Secondary Grade Yield 8.50% 8.50% Source: Deloitte Access Economics, Q & LMW Research For more information Ross Farwell Director - Industrial ross.farwell@lmw.com.au Emma Carter Director - Industrial emma.carter@lmw.com.au

2 Market Overview The disconnect between the leasing market and investment market continues with industrial property although there have been encouraging periods, particularly in the first half of the financial year when a healthy number of larger leasing deals were recorded. Investor interest remains strong for Brisbane industrial investment properties with a long WALE, due in part to the current low interest rate environment and low Australian dollar. Despite this activity is down on the previous year and lower than historical average due to limited stock available on the market with the right appeal to investors. Consequently, there has been a slight firming of yields over the last 12 months for prime grade property. However, there is growing disparity between prime and secondary grade assets with prime grade industrial property yields averaging around 150 to 175 basis points between the grades. The exceptions being those properties which offer a value-add opportunity as developers and investor alike see potential good gains with an investment hungry market. Leasing activity of industrial property across Brisbane remains challenging, with the amount of space leased falling 26% in the 12 months to 30 June 2017 from the previous financial year. More recently however a number of pre-commitment and speculative deals have helped support the volume of transactions to date in The majority of leasing enquiry at present is being driven by industrial users operating in the retail, servicing and transport/logistic industry sectors. Net face rents for prime and secondary grade stock have remained relatively stable over the 12 months to date. Incentives continue to rise and although net face rents for prime grade stock currently sit around $120 per square metre on average and broadly $85 per square metre for secondary grade, effective net rents are 15 to 18 percent lower. There is strengthening interest from developers to secure sites as the general thinking has been that the shake out from the decline in mining construction investment is at end and most economic forecasters are predicting an upturn in industrial production on the back of major projects in the greater Brisbane region, which will translate into demand for industrial premises. This is starting to show up the in future supply pipeline. 2

3 Infrastructure Whilst public investment in infrastructure projects is down on previous years there are several planned / approved projects that may help stimulate and or support the take-up of industrial property in Queensland over the coming years, including: The upgrade to Port Drive at the Port of Brisbane includes upgrading the four lanes along Port Drive, upgrading the Kite Street and Port Drive intersection and providing a new connection between Tanker Street and Osprey Drive. Kingsford Smith Drive will be widened from 4 to 6 lanes to improve traffic flow and reduce congestion along this major arterial road linking Brisbane s CBD with Brisbane s TradeCoast region. Completion is anticipated by early Brisbane Parallel Runway a new parallel runway (NPR) is being built at Brisbane Airport, which will be 3.3 km long, 60m wide and located 2 km west of and parallel to the existing main runway. The total cost of the NPR is estimated at $1.35 billion and is expected to have a project time-frame of 2014 to Gateway Upgrade North major construction and an upgrade to the Gateway Motorway, which will include an allowance for a 6-lane upgrade that can be widened to 8 lanes in the future and construction of a new northbound bridge over Sandgate Road and the Shorncliffe rail line. Relocation of the motorway ramps to and from the upgraded Deagon Deviation to improve safety and rehabilitation of the Gateway Motorway between Bracken Ridge and the Bruce Highway, including pavement and safety improvements. The project is currently under construction and due for completion by the end of Bruce Highway Interchange upgrading the existing Boundary Road interchange on the Bruce Highway at Narangba. The project will include a new 6-lane bridge over the highway to increase capacity and ease congestion, improved bridge clearance to avoid the need for high loads detouring on other roads, and the upgrade will accommodate future 8-laning of the Bruce Highway. The Tinana Interchange $38 million upgrade opened to traffic this month. Ipswich Motorway Rocklea to Darra Stage 1 upgrading the eastern end of the Ipswich Motorway between Rocklea and Darra in a staged approach, addressing conjestion. Stage 1 is a 3km section of the Ipswich Motorway from Granard Road, Rocklea to Oxley Road, Oxley. The project will include upgrading the motorway from 4 to 6 lanes, higher bridges over Oxley Creek, including 7 new bridges, a new southern service road connection from Boundary Road to Factory Road and new traffic signals at the Suscatand Street intersection. The Department of Main Roads and Transport is currently procuring a contractor for the design and construction contract for Stage 1. The contract was awarded to Qld based Bielby Hull Albem Joint Venture in April this year. Construction is expected to commence in October Mount Lindsay Highway Beaudesert Town Bypass the town centre bypass will start at the existing Mount Lindsay Highway near Helen Street and run to the west of the town centre with an intersection at Bromelton Street (Beaudesert Boonah Road) and will include a new 1.5 km section of the Mt Lindsay Highway, a 2-lane urban road that will provide heavy vehicle bypass of the town centre and Q50 flood immunity and a 50 metre bridge across Spring Creek. Construction commenced mid-january 2017 with completion expected by late Pacific Highway Upgrade upgrade of a 4.2 km section of the Motorway M3 between Eight Mile Plains and Springwood where the M3 merges with the southbound lanes of the Gateway Motorway. Logan Enhancement Project the proposed upgrade, also called the Logan Enhancement Project by Transurban, includes interchange upgrades at key congestion and accident hot spots, widening parts of the Gateway Extension Motorway and the construction of some new ramps at Compton Road, to ease congestion and improve safety. Construction of the project is now underway, with detailed design continuing until the end of Inland Freight Rail a proposed 1,700 km rail track freight corridor connecting Melbourne and Brisbane through inland eastern Australia. The total cost of the project is estimated at $10.7 billion and the construction time is expected to be eight years for through connection and ten years for the full Melbourne-Brisbane double stacking. It is estimated that the total travel time will be less than 24 hours, and that one train could carry the same freight as 110 B-Doubles. The business case includes a recommendation to provide a link from Acacia Ridge to the Brisbane Port to maximise the time benefits of the dedicated freight rail. 3

4 Supply Under Construction Currently there are around $1.2 billion of industrial buildings across more than 100 projects planned and/or under construction for completion within the next 30 months, across the LGA s of Brisbane, Logan, Ipswich and Moreton Bay. Apart from some major construction being carried out at the RAAF Base Amberley, the Trade Coast and Southside Precincts are seeing most of the new construction. The table below shows a summary of select projects currently under construction or planned for anticipated completion with the period 2017 to 2019 Select Future Industrial Supply Late (GFA 5,000+ sq m) Address Tenant GLA Completion Sq m Brickworks Rd, Rochedale Super Amart Distribution Centre 54,085 H2, & 51 Clyde Gessel Pl, Eagle Farm Bevchain 35,935 H2, Wayne Goss Dr, Berrinba National Tiles (part) 19,452 H2, Seeana Pl, Heathwood (Lot 1) Asahi and Schweppes Beverages 18,778 H2, Wayne Goss Dr, Berrinba Sigma Pharmaceuticals 14,990 H2, Orchard Rd, Richlands Coca Cola 30,000 Early Peterkin St, Acacia Ridge Symbion Distribution Centre 14,000 Mid Industrial Ave, Wacol MADAD Investments Pty Ltd (Stage 2) 6,791 Mid-2018 Cnr Radar & Lytton Rd, Lytton Stora Enso 5,950 H Boundary Rd, Richlands Ardex Australia Pty Ltd 5,099 Early Corymbia Pl, Parkinson Moi International (Australia) Pty Ltd 5,000 Early & 51 Charles Ulm Pl, Eagle Farm Stages 1 & 2 of multi stage 4,750 Early & 30 Seeana Pl, Heathwood Lot 2 Woolworths Distribution Centre (DAL) 58,728 Mid Anton Rd, Hemmant Proposed staging by Dexus 24,510 H Source: LMW Research, Generally, most developments have been held in abeyance until some pre-commitment is secured and there are signs that this is picking up. Accordingly, there is likely to be a bit more supply coming through that has been seen in the last two years. 4

5 Land / Development Market The table below outlines the average rate achieved per square metre for estate quality / serviced industrial land across Brisbane s industrial precincts. Land activity has improved slightly over the past 12 months to September quarter 2016 with land prices for serviced industrial land sized 2,000-5,000 square metres currently achieving $250-$350 per square metre. Estates such as Metroplex Westgate (Wacol) and Connect West (Darra) are some of the estates now starting to gain some traction in the market as supply in strategically located regions remains limited. Rates for larger allotments and englobo sites however have remained relatively flat over the past year. Source: LMW Research, 2017 Land Size (sq m) Average Rate ($/sq m) 2,000-5,000 $250-$350 10,000 50,000 $200-$325 75,000+ $150-$220 Recently released projects include stage 7B of Avid Property Group s industrial estate, New Base in Brendale. The outer northern suburb has experienced an industrial and retail renaissance of late with fresh faced national tenants taking advantage of the good road network corridor including access to the Gateway Motorway. New entrants over recent years include the Super Retail Group, Aldi and VISY. Set on 85 hectares of land and comprising 107 lots, with only 5 lots remaining. There appears to be continued demand for large purpose built facilities with Super Amart as one example, committing to approximately 54,000 square metres at Goodman s Rochedale Motorway Estate. A further example, Schweppes have also committed to a $50 million investment in a purpose built facility to be located in Sienna Place, Heathwood. The application was submitted initially on 11 August 2016 for a warehouse and distribution centre with a gross floor area (GFA) of 18,778 square metres. The proposal includes 121 car parks, office space, construction of service road to accommodate heavy vehicle movements and alteration to Sienna Place to ease vehicles movements. The below table lists a selection of recent industrial land sales across greater Brisbane metropolitan region. Brisbane Industrial Land Sales Date Address Price Land Area $ / Sq m, Purchaser ($M) (Sq m) Jun Main Beach Rd, Pinkenba , Gardia Mar Main Beach Rd, Pinkenba , HiTec Welding Pty Ltd Feb & 1615 Ipswich Rd, Rocklea , Bereford Land investment Pty Ltd A large proportion of the land is flood prone Nov Logistics Pl, Larapinta (Motorway Business Park) , Logos Property Impacted by large powerline easement Oct a East West Arterial Rd, Hendra , Zuri Properties Pty Ltd Oct Kellar St & Wayne Goss , Frasers Logistics & Industrial trust Dr, Berrinba Oct Leitchs Rd, Brendale , Private Developer Sep Nudgee Rd, Hendra J J Richards & Sons Pty Ltd Source: LMW Research,

6 Leasing Activity & Rental Market Leasing activity across Brisbane Metropolitan area remains patchy. Whilst there has been some significantly sized deals take place overall leasing activity in terms of square metres leased is significantly below the figures achieved in the last two years. The graph below shows leasing activity (>1,000 sq m) for the financial years from June 2007 to June LMW research recorded 516,000 square metres of leasing activity occurring in the year to June This is down 26 percent in space taken compared with the previous financial year. Uncertainty regarding Queensland s economic future continues to be a factor in companies adopting a wait and see attitude and reluctant to consider expansionary plans at this time. That may now be starting to change as companies weigh up what is now a competitive market and good timing to secure larger premises. The chart above points to the smaller companies holding off with leases in the 1,000 to 5,000 square metres only around 60 percent of the volume in year to June 2017 compared to the previous year. Certainly that sector of the market is still active as can be seen in the sample of leasing activity in the following table but the volume is certainly down. This will change quickly as confidence in the market returns and demand for niche services grows. The latest GDP growth figures issued by the ABS point to an encouraging lift of 0.8 percent for the quarter to June 2017 with the main drivers stated to be in retail, construction (particularly in NSW and Qld) and manufacturing. All the factors which create industrial demand. Deloitte Access Economics forecast a move from negative growth of -1.4 percent in Queensland s industrial production in the year to a positive growth of 4.7% in the current year to June That is quite a turnaround and is based upon the amount of major project underway right now in South-east Queensland. 6

7 Selected Greater Brisbane Industrial Leasing Deals Date Address Area (sq m) Net Rent ($/sq m) Term Tenant Apr Tradecoast Dr, Eagle Farm 26, AM Solutions Apr Magnesium Dr, Crestmead 6, OzWide Freight Apr Boundary Rd, Coopers Plains 5, Market Direct Campers Apr Brickworks Rd, Rochedale 5, Japan Food Corp Apr Archimedes Pl, Murarrie 3, Tritium Apr Benjamin Pl, Lytton 2, Opteck Jan-17 Bldgs 45, 46 & 35 / 448 Nudgee Rd, Hendra 7, CV Services Group Pty Ltd Jan Hoepner Rd, Bundamba 7, Louvre Clad Pty Ltd Jan Lathe St, Virginia 2, Mayco Kitchens Jan Machinery St, Darra 2, ATCO Structures & Logistics Jan Fison Ave, Eagle Farm 2, Brisbane Car Warehouse Jan-17 A/115 Crockford St, Northgate 1, Coastal Steelfixing Australia Jan-17 Unit 5/133 South Pine Rd, Brendale 1, PanAsia Aluminium Pty Ltd Jan Kingtel Pl, Geebung 1, Marine Systems Aust. Jan-17 2/60 Wentworth Pl, Banyo 1, Delight Décor Pty Ltd Jan Baylink Ave, Deception Bay 1, Active Miler Aus Jan-17 53B Raubers Rd, Northgate 1, Neta Tyre Sales & Service Dec-16 SouthWest 1 Enterprise Park, Kellar Dr, 7, DHL Excel Supply Chain (Aust) Berrinba Dec Mica St, Carole Park 2, Simon National Carriers Dec Weyba St, Banyo 1,760* Suez Recycling & Recovery Holdings Dec-16 Bldg1 /140 Mica St, Carole Park 1,585* Rebound Truck Bodies Source: LMW Research, 2017, * Leaseback Prime grade net face rents for industrial property sized 1,000 square metres and above across greater Brisbane remained relatively steady over the past 12 months to June 2017 to sit at an average of $112/ sq m. The TradeCoast precinct continues to command some of the stronger rates achieved with net face rents in general positioned at $115/sq m to $125/sq m. Although net face rents for prime grade stock have not fallen over the past 12 months, the competitive nature of the precommitment market has seen incentives rise to an average of 15% which has consequently affected the net effective rate. Net face rents for secondary grade industrial property over the last 12 months also remain flat. As with prime grade stock incentives have risen which has impacted negatively upon the net effective rate. Given the competitive nature of the market at present landlords are looking to refurbish or upgrade their property in order to compete on other than price. It is considered that if economic conditions and industrial production lifts in Queensland over the current financial year, some growth in rents may well return. The following graph overleaf outlines industrial prime grade rents from 2006 and forecasts out to

8 Investment Market Brisbane industrial investment property sales remain the majority of the total industrial sales market activity and it has been noticeable that even smaller investors and SMSFs are looking to invest in industrial property. Owner occupier activity is slow compared to historical averages but is likely to pick up as industrial production lifts and confidence returns. The chart below shows annual sales ($2 million and over) across the Brisbane metropolitan area from June 2007 to June The decline in the financial year to June 2017 is regarded more a result of limited quality investment stock available than a lack of demand. 8

9 Strong demand from investors has led to a slight tightening in yields and there is a strong possibility that further tightening lies ahead, particularly as the return to reasonable economic growth occurs as forecast. The table below outlines recent industrial sales across the greater Brisbane industrial market Select Brisbane Metropolitan Industrial Sales Date Address Sale Price $M GLA (sq m) $/sq m Land (sq m) $/sq m Init. Yield (%) Jun Orchard Rd, Richlands ,000 $1, ,000 $ Jun-17 Volvo Metroplex, Boundary Rd, Wacol ,994 $3,527 32,700 $1, Jun Bruce Hwy Eastern Service Rd, ,479 $2,306 16,600 $ Burpengary Jun Holt St, Pinkenba ,670 $2,844 8,051 $590 Dev Jun Doherty St, Brendale ,600 $1,800 3,056 $942 VP May Holt St, Pinkenba ,903 $1,614 4,789 $1, May Kingsford Smith Dr, Eagle Farm ,091 $1,198 10,479 $582 U/D May Dulacca St, Acacia Ridge ,510 $1,382 5,555 $ * May West Link Pl, Richlands ,961 $1,537 6,651 $ Apr-17 (Lot 1) 175 Eagle Farm Rd, Pinkenba ,200 $2,277 24,850 $1, Mar Newman Rd & 9 Delta St, Geebung ,000 $1,042 36,074 $318 U/D Feb Industrial Ave, Wacol ,345 $661 54,600 $ Feb Paradise Rd, Willawong ,193 $1,560 9,685 $ Feb Titanium Crt, Crestmead ,472 $1,159 13,870 $ Source: LMW Research U/D Undisclosed; Dev Development add potential; *assessed market yield. The lead sale in the 2017 financial year was the sale of the Coca Cola Amatil plant and distribution centre in Richland for $156 million at a reported yield of 5.2 percent. While that sale price is yet to be ratified, it is clearly the largest industrial sale in Queensland and represents a major manufacturer capitalising on a strong investment market with sharp yields in response to offering a 20 year leaseback. Outlook A drive for efficiency in industrial production to contain costs will likely drive industrial premises into the future and in this regard warehouse design will play an increasing part. In turn, this will lead to redevelopment, in degrees, to secondary premises to ameliorate the impact of what will likely be a widening in the gap between prime and secondary industrial property values. This is similar to the scenario seen in commercial office markets and reflects changing work efficiencies, automation and distribution methods. It will in itself drive activity. Tie this into a period of general economic growth and an unprecedented amount of infrastructure and major projects over the next decade and it underpins the favourable forecasts that are being touted. 9

10 For further information please contact: LMW Level 4, 120 Edward St Brisbane CBD QLD 4000 T: (07) E: No part of this research report or any reference to it may be included in any other document or reproduced or published in any way without the written approval of the form and context in which it is to appear. No liability is accepted for any loss or damage (including consequential or economic loss) suffered as a consequence of fluctuations in the property market subsequent to the date of the report. The opinion herein is relevant as at the date of survey only and no warranty can be given to the accuracy of the opinion at any point during the date of the report. The research report is current as at the 31 st August 2017 only. The opinions herein may change significantly and unexpectedly over a relatively short period including as a result of general market movements or factors specific to the survey area and property classes, the opinions expressed in this research report are that of the researcher and is authorised by LMW. Liability limited by a scheme approved under Professional Standards Legislation. 10