Property investors in Sydney are seeing the opportunity in the industrial segment, with activity rising to record levels last year, according to the latest report from Knight Frank.
Over the past year, property transaction volumes in Sydney's industrial segment shot up to $2.17bn from $1.7bn in 2018 and $1.28bn in 2017. Leasing activity also increased substantially, with volumes reaching 1.1 million square metres, representing a 20% increase from the previous year.
Marco Mascitelli, senior analyst at Knight Frank, said the strong interest in logistics and retail trade sectors is underpinning the development in the industrial property segment.
Around 677,000 square metres were delivered in these two sectors last year, hitting a decade high. The activity in these sectors is expected to grow further this year, eclipsing the current record.
"The level of activity relative to the previous three years is trending above average, indicating that as a sector, industrial property has solid fundamentals that are benefiting by growth in e-commerce and the ongoing evolution of the supply chain," Mascitelli said.
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The capital flowing from real estate investment trusts (REITs) and private firms also show how "popular" the sector has become for investors.
REITs are reporting occupancy rates of up to 90%, shrinking vacancy rates, and above-average take-up levels. Mascitelli said these factors not only boost competition and yield compression but also drive growth in asset value.
The series of capital raisings by REITs in the second half of last year could also indicate a keener long-term interest for industrial property. Furthermore, the low interest-rate environment is creating more room for potential growth in the segment.
"Lower interest rates are expected to continue to drive demand for industrial logistics assets going forward, particularly those with strong lease covenants, potentially buoying investment volumes in 2020," Mascitelli said.
Confidence amongst developers is also expected to remain steady this year, with over 790,000 square metres of new supply in the pipeline by the end of the year.
"The boost in development will assist in closing the cap in demand for logistics occupiers trying to keep up with the growing e-commerce trade," Mascitelli said.
