Post on 05-Aug-2020
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2
Research Analyst SA
Infrastructure—North to South Corridor
The North to South Corridor is starting to
come together with the majority of
projects completed. Current projects
underway are the Darlington Upgrade
and Northern Connector, with expected
completion in late 2019. The remaining
sections that are yet to commence are
the River Torrens to Anzac Highway and
“Anzac Highway to Darlington”. On
completion, the 78-kilometre North-South
Corridor will reduce travel times by
providing a continuous non-stop
carriageway from Gawler to Old
Noarlunga. Furthermore, it will also
improve access to some of the key
industrial areas such as Edinburgh Parks
in the Outer North.
Manufacturing is back
The closure of the 122.5ha General
Motors Holden (GMH) site in Elizabeth
(Q2 2017) resulted in job losses across
the State. The new owner of GMH site,
Melbourne based developer Pelligra
group, has secured tenants such as
Genis Steel, SA Power Networks, Sonnen
and Levett Engineering.
In addition, Whyalla steelworks owner
Sanjeev Gupta (GFG Aliiance) plans to
revive vehicle manufacturing in Australia
by building electric cars. The location of
the manufacturing site is unknown
however, VIC and SA are being
canvassed for potential sites, due to their
history of vehicle manufacturing.
Besides that, the defence industry has
made a positive impact on the SA
economy, resulting from the $35 billion
Future Frigates contract with BAE
Systems. BAE Systems have recently
employed more than 80 graduates and
are expected to employ an additional 100
graduates next year as the project ramps
up. Furthermore, small & medium
business such as Redarc Electronics
have enjoyed the flow on contracts from
defence projects. More particularly,
Redarc had expanded its factory in
Lonsdale— an additional 3,000m² of
advance manufacturing space which will
increase the manufacturing capacity by
250% and create jobs for up to an
additional 100 workers.
The unemployment rate in SA currently
stands at 5.9%, which is 0.7% higher
than the national average as of June
2019 (seasonally adjusted). This figure
has improved from 7.3% in April 2017.
Moving forward, this downward trend is
likely to continue as a number of major
projects in the defence and
manufacturing sectors come online.
Low cost of capital will benefit the property market
Evidence from sales transactions during
CY 2018 suggested that the low cost of
capital and the abolition of stamp duty
had a positive impact on the number of
transactions for industrial properties
above $5 million.
In July 2019, the Reserve Bank of
Australia (RBA) has cut the cash rate to
1.00% (historical low), and also indicated
there are more cuts to come in the
following months. The downward trend
has taken the cash rate from 4.75%
(November 2010) to 1.00% (July 2019).
Hence, it is likely to continue to drive the
cost of capital down and attract more
investment into the property market.
Economic Growth
Aust: 1.8% SA: 1.8%
March 18 to March 19
Population Growth
Aust: 1.6% SA: 0.8%
As at December 2018
Unemployment Rate
Aust: 5.2% SA: 5.9%
As at June 2019
Infrastructure Spending
SA State Budget
2019/20: $11.9 billion
Unemployment Rate
(Seasonally Adjusted) Australia vs South Australia
Engineering
Construction
Aust: -13.5% SA: 7.8%
March 18 to March 19
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
Jun
-2009
Jun
-2010
Jun
-2011
Jun
-2012
Jun
-2013
Jun
-2014
Jun
-2015
Jun
-2016
Jun
-2017
Jun
-2018
Australia Unemployment Rate (Seasonally Adjusted)
South Australia Unemployment Rate (Seasonally Adjusted)
3
RESEARCH
Leasing transaction volumes remain low
as a result of the continuing trend of
owner occupation, where in lieu of
leasing their property requirements,
occupants are favouring to purchase
their facilities. This is partly due to the
historically low cash rate, coupled with
the abolition of stamp duty, which further
encouraged tenants to become owners.
The most sought after properties to lease
are those within inner metropolitan areas
with good access to major transit routes.
The majority of leasing transactions have
been located in the Inner North. This is
largely due to the size of the precinct in
comparison to other precincts. A recent
leasing transaction occurred at 113-117
Bedford Street, Gillman. The tenant,
Plasdene Glass occupies a brand new
office/warehouse of 2,456m², the deal
was struck at a face rental rate of $118/
m² p.a. net for an initial term of 5 years.
Furthermore, Advanced Piping
Systems— a supplier of Polyethylene
fittings and piping systems for mining
and industrial applications recently
vacated from 5, 7 & 9 Benjamin Street, St
Marys due to expansion. The tenant was
previously occupying a GLA of 1,823m²,
and has since leased 30 Charles Road,
Beverley, formerly occupied by Grace
Logistics and comprises a GLA of
7,135m². The deal was struck at a
commencing rental rate of $75/m² p.a.
net of GLA for an initial term of 5 years.
The outlook for tenant demand is looking
positive with several briefs for space in
the market for office/warehouse
accommodation ranging from 3,000m² to
10,000m². Notable requirements are from
industries such as logistics (circa
ADELAIDE INDUSTRIAL AUGUST 2019
Rents, Incentives & Outlook
Average
Prime
(all regions)
$95/m²
0.5% p.a growth
10.0% incentive
Average
Secondary
(all regions)
$62/m²
0.8% p.a growth
5.67% incentive
Adelaide Industrial Rents $/m² net face, 2009-2019
Prime vs Secondary
Recent Leasing Activity Adelaide
Address Region
Net
Rent
$/m²
Bldg
Area
(m²)
Term
(yrs) Tenant Date
Part, 113-117 Bedford Street, Gillman IN 118 2456 5 Plasdene Glass May-19
14-16 Pambula Street, Regency Park IN 82 1,285 5 King Furniture May-19
30 Charles Road, Beverley IW 75 7,135 5 Advanced Piping Apr-19
7 Rosberg Road, Wingfield IN 88 1,713 5 Stoddart Mar-19
Unit 3, 43-55 Produce Lane, Pooraka IN 110 2,807 3 Marlau Mar-19
Part 41 Barfield Cres, Edinburgh North ON 50g 2,080 3 Wheel & Barrow Feb-19
Part 51-85 Morrow Rd, O’Sullivan Beach OS 49 15,456 4 Orrocon Steel Feb-19(r)
Unit 8, 3 Selgar Avenue, Tonsley IS 80 1,222 3 Black Mango Dec-18
53-73 Churchill Road North, Dry Creek IN c65 4,319 4 Carpet Call Jul-18
25 George Street, Green Fields IN 70 4,096 # Apex Steel May-18
Limited leasing activity over the past six months
10,000m²), building construction (circa
10,000m²), pipe manufacturing (circa
3,000m²) and electrical manufacturing
(circa 3,000m²).
Rents have remained steady
Rents have remained steady over the
past 6 to 12 months. Despite this,
properties within inner metropolitan
areas with good access to major transit
routes have continued to be met with
steady leasing demand. Average prime
incentives remained unchanged at
approximately 10%.
Adelaide Industrial Secondary Rents $/m² net face, 2009-2019
By precinct
40
50
60
70
80
90
100
110
Jul
-09
Jul
-10
Jul
-11
Jul
-12
Jul
-13
Jul
-14
Jul
-15
Jul
-16
Jul
-17
Jul
-18
Jul
-19
PRIME SECONDARY
Adelaide Industrial Prime Rents $/m² net face, 2009-2019
By precinct
40
60
80
100
120
140
160
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
INNER NORTH OUTER NORTH INNER SOUTH
OUTER SOUTH INNER WEST
40
45
50
55
60
65
70
75
80
85
Jul
-09
Jul
-10
Jul
-11
Jul
-12
Jul
-13
Jul
-14
Jul
-15
Jul
-16
Jul
-17
Jul
-18
Jul
-19
INNER NORTH OUTER NOR TH INNER SOUTH
OUTER SOUTH INNER WEST
4
Holden site has finally settled
The 122.5ha General Motors Holden
(GMH) site has finally settled in January
2019 after an extended settlement with
a due diligence period (approximately
13 months). The site was transacted for
circa $55 million to a Melbourne based
developer Pelligra Group with a portion
(approx. 30%) on a long term leaseback
to GMH utilised for parts and service.
The Pelligra Group plans to transform
the site into a multi-purpose business
precinct, known as ‘Lionsgate Business
Park’. Since taking possession of the
site, Pelligra Group has leased a portion
of the site to tenants including Genis
Steel, SA Power Networks, Sonnen and
Levett Engineering.
$535 million Naval Shipyard is well underway
One of the most significant
developments in SA is the $535 million
Osborne Naval Shipyard. The property
is currently under construction and will
comprise four (4) new major buildings,
with the largest building being approx.
13,500m² (180m x 75m) and 55 metres
in height (equivalent to 14 storey
building). The development is expected
to be completed by March 2020 and will
be utilised for shipbuilding infrastructure
for the $35 billion future frigates project.
Over the past six months, land values
have remained steady for all precincts.
Despite this, the high underlying land
value in the inner west has driven a
change into a mixed use precinct.
Metcash facility
Another major development is the
former Bianco steel fabrication facility,
located at 600 Main North Road, Gepps
Cross. The property has recently
transacted off-market to Charter Hall
for circa $35 million. Prior to the
settlement, the vendor had secured an
ASX listed tenant (Metcash) with plans
to construct a circa 68,000m² purpose-
Recent Land/Development Sales Activity Adelaide
Address Region Price
($ mil)
Site Area
(m²)
$/m² of
site area Zone Vendor Purchaser Sale Date
180 & 185 Philip Hwy, Elizabeth South ON 55.00 122.5ha 45 IND GM Holden Pelligra Jan-19
Lot 6 Schumacher Road, Wingfield IN 3.35 23,690 141 IND Renewal SA Private Developer Nov-18
157-165 Cross Keys Rd, Salisbury South ON 12.5 151,900 82 IND Commercial General Straits Real Estate Oct-18
Lot 34 Share Street, Kilkenny IN 11.59 50,277 230 UE Private Straits Real Estate Oct-18
Lot 10 & 22 Schumacher Road, Wingfield IN 5.30 44,190 120 IND Renewal SA Spendless Shoes Jul-18
21-27 Johansson Road, Wingfield IN 1.65 5,502 300 IND Landra Commercial Private Mar-18
built distribution centre. On completion
(scheduled for mid-2020), Metcash will
be relocating their existing premises
from Kidman Park. In 2018, Metcash
entered a long-term agreement with the
majority of the Foodland supermarkets
owners in SA which includes the
Romeo’s and the Chapley’s—excluding
Drakes, which are constructing their
own facility in the Outer North.
5
RESEARCH
South Australia remains attractive for
investors seeking higher income returns.
A notable investment sale was the Port
Adelaide Distribution Centre which
located on 25-91 Bedford Street,
Gillman. The property is currently under
contract to a Melbourne Based Fund,
Quintessential for approximately $80
million reflecting a core market yield of
circa 9.50%.
Another notable transaction was the sale
of 1118-1146 Port Wakefield Road,
Burton. The property was previously
sold in 2014 for $39.5 million reflecting a
core market yield of 8.43% (excluding
the adjoining sites). More recently
(October 2018), the property transacted
off-market to Singaporean based REIT,
Soilbuild Business Space for $61.25
million, with a “triple net” leased to
Strong start for transactions above $5 million
YTD 2019 industrial sales transaction
that exceed $5 million currently stands
at $140.08 million. This is significantly
higher than $49.35 million this time last
year. This was largely due to the sale of
the GMH site and a distribution centre
(to be construct) located in Gepps Cross
(Metcash).
Properties above $20 million continue to attract strong interest
Fully leased industrial property with
strong lease covenants in well located
areas continue to attract strong interest,
particularly from interstate and off-shore
buyers. Evidence has suggested that
over the past 12 to 18 months, there has
been an increase in the number of
transactions for properties above $20
million. This demand is being partly
driven by the historically low interest rate
environment together with the abolition
of stamp duty on commercial properties.
Furthermore, average prime yields
across the Eastern Seaboard are
generally in excess of 100 basis points
firmer than in South Australia. Hence
Ingham’s reflecting a core market yield
of 6.28% and a lease term certain of
16.1 years. The property was
purchased together with an office
building in Canberra (circa $55 million)
from Western Australian based fund,
Ascot Capital.
Prime yields are firming
Industrial yields have shown a continual
firming bias over the past six months.
As at July 2019, average blended prime
yields are ranging from 7.25% to 8.00%
for all precincts (average 7.77%).
Meanwhile, the average blended
secondary yields are ranging from
8.50% to 9.25% (average 9.04%).
Yields are likely to continue firming,
given the value proposition and
improving demand on offer in SA.
ADELAIDE INDUSTRIAL AUGUST 2019
Current Yields & Outlook
Average Blended
Prime
7.25% - 8.00%
-43bps 12 mths
Average Blended
Secondary
8.50% - 9.25%
-45bps 12 mths
SA vs East Coast Average Prime Yields 2009 - 2019
Recent Improved Sales Activity Adelaide
Address Region Price
($ mil)
Bldg
Area (m²)
Core Mkt
Yield (%)
WALE
(yrs) Vendor Purchaser Sale Date
Port Adelaide Distribution Centre IN c80.00 c167,485 c9.50 N/A Stockland Quintessential U/C
Lot 701 Port Wakefield Road, Gepps Cross IN c35.15 TBC N/A N/A Aretzis Group Charter Hall Apr-19
250 Regency Road, Regency Park IN 12.75 6,608 VP VP Footers Structural Detmold Group Apr-19
42-56 Grand Junction Road, Kilburn IN 10.40 12,174 VP VP IJF Bipco Properties Feb-19
Unit1, 2 & 4, 35-37 Maxwell Road, Pooraka IN 13.60 9,252 6.65 4.0 APD Realside Feb-19
65-85 Deeds Road, North Plympton IW 13.18 12,185 VP VP Ascot Capital Bidfood Jan-19
80-92 Grand Junction Road, Kilburn IN 9.31 6,889 7.73 15.0 A Noble & Son Ltd Peak Equities Nov-18
1118-1146 Port Wakefield Road, Burton ON 61.25 24,324 6.28 16.1 Ascot Capital Soilbuild Business Oct-18
113-117 Bedford Street, Gillman IN 14.00 8,844 7.08 4.4 Frasers Trilogy Oct-18
Adelaide Industrial Sales 2009 - 2019 by sub-market - >$5 million
$0
$50
$100
$150
$200
$250
$300
$350
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
INNER NORTH OUTER NORTH
INNER WEST INNER SOUTH
OUTER SOUTH LE FEVRE PENINSULA
10 YR AVERAGE
YTD
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
9.00%
9.50%
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Sydney Melbourne Brisbane Adelaide
6
Inner West
• Sales & leasing transactions
have been limited over the past
six months in Inner West. This
is due to the market being
tightly held and the high
underlying land value is driving
a change from industrial to
mixed use, which is evident
through Thebarton (former
Coca-Cola site).
• Notable leasing deals include
30 Charles Road, Beverley,
leased for a 5 years initial term
at a commencing rent of
$535,125 p.a. net (equivalent
to $75/m² p.a. net).
Inner North
• Veolia has started to fill the
18.7ha low lying site
purchased from Renewal SA
(Lot 403 Hanson Road, Dry
Creek) and plans to build new
HQ, a solar farm and waste to
energy power plant.
• Charter Hall & Aretizs Group
(JV) plans to construct a circa
68,000m² purpose-built
distribution centre for Metcash
at Gepps Cross.
• Positive outlook for the former
GMH site, with new businesses
setting up on the site such as
Genis Steel, SA Power
Networks, Sonnen and Levett
Engineering.
Land
Avg <5,000 sqm:
Avg 1-5 ha: $233/m²
$143/m²
Rents:
Avg Prime:
Avg Secondary: $92/m²
$60/m²
Yields:
Avg Prime:
Avg Secondary: 6.75% - 7.75%
8.00% - 9.00%
Land
Avg <5,000 sqm:
Avg 1-5 ha: $80/m²
$54/m²
Rents:
Avg Prime:
Avg Secondary: $71/m²
$48/m²
Yields:
Avg Prime:
Avg Secondary: 8.00% - 8.75%
9.50% - 10.50%
Land
Avg <5,000 sqm:
Avg 1-5 ha: $430/m²
$270/m²
Rents:
Avg Prime:
Avg Secondary: $122/m²
$77/m²
Yields:
Avg Prime:
Avg Secondary: 6.75% - 7.75%
8.25% - 8.75%
Outer North
Address: Unit 1, 2 & 4, 35-37 Max-
well Road, Pooraka
Price: $13.60 million
Sale Date: February 2019
Vendor: APD
Purchaser: Realside
Yield: 6.65%
Comment: The property transferred off
market in three (3) separate
transactions. W.A.L.E of
4.0 years.
Address: 1118-1146 Port Wakefield
Road, Burton
Price: $61.25 million
Sale Date: October 2018
Vendor: Ascot Capital
Purchaser: Soilbuild Business Space
Yield: 6.28%
Comment: Sold following off market
negotiation with a lease
term certain of 16.1 years.
Address: 65-85 Deeds Road, North
Plympton
Price: $13.18 million
Sale Date: January 2019
Vendor: Ascot Capital
Purchaser: Bidfood
Yield: Vacant Possession
Comment: The property was pur-
chased by an owner occu-
pier/sitting tenant following
an off-market transaction.
7
RESEARCH
• Le Fevre Peninsula is now
recognised as a defence
precinct, in light of the
submarine and frigates to be
built at Osborne
• The $535 million shipbuilding
yard is well underway and is
scheduled for completion by
March 2020. Once completed,
the development will comprise
four (4) new major buildings,
with the largest building being
approx. 13,500m² and 55
metres in height (approx. 14
storeys high).
• The 61 hectare Mitsubishi plant
site closed down in 2008.
Since then the area has been
redeveloped into an innovation
district called “Tonsley”.
Tonsley currently has more
than 70 business including
TAFE, Flinders University, ZEN
Energy and Siemens.
• Limited sales, however there is
high demand for industrial
property under $1 million, with
the majority of buyers being
owner occupiers.
• Local manufacturers (Redarc
Electronics and Rowlands
Metalworks) located at
Lonsdale have enjoyed flow on
contracts for defence projects.
ADELAIDE INDUSTRIAL AUGUST 2019
Le Fevre Peninsula Inner South Outer South
Land
Avg <5,000 sqm:
Avg 1-5 ha: $369/m²
$253/m²
Rents:
Avg Prime:
Avg Secondary: $115/m²
$75/m²
Yields:
Avg Prime:
Avg Secondary: 7.00% - 8.00%
8.25% - 9.25%
Land
Avg <5,000 sqm:
Avg 1-5 ha: $98/m²
$60/m²
Rents:
Avg Prime:
Avg Secondary: $75/m²
$50/m²
Yields:
Avg Prime:
Avg Secondary: 8.25% - 9.00%
9.25% - 10.25%
Land
Avg <5,000 sqm:
Avg 1-5 ha: $110/m²
$83/m²
Rents:
Avg Prime:
Avg Secondary: $100/m²
$70/m²
Yields:
Avg Prime:
Avg Secondary: 7.75% - 8.50%
9.00% - 10.00%
Address: Lot 102, Coghlan Road,
Outer Harbor
Price: $8.75 million
Sale Date: August 2018
Vendor: Frasers Logistics
Purchaser: Qube Logistics
Comment: Sold off market to the sit-
ting tenant. The property
has direct access to the
national rail network via a
siding agreement with
ARTC.
Address: Unit 8, 3 Selgar Avenue,
Tonsley
Rent: $80/m² p.a. net
Start Date: December 2018
Tenant: Black Mango
Landlord: Private
Term: 3 Years
Comment: Nil
Address: Portion 51-85 Morrow
Road, O’Sullivan Beach
Rent: $49/m² p.a. net
Start Date: February 2019 (Lease
Extension)
Tenant: Orrocon Steel
Landlord: Private
Term: 4 Years
Comment: The original lease com-
menced February 2014
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RESEARCH
Yee Ng Research Analyst, SA
+61 8 8233 5217
Yee.Ng@sa.knightfrankval.com.au Ben Burston Partner,
Chief Economist
+61 2 9036 6756
Ben.Burston@au.knightfrank.com
INDUSTRIAL
Garry Partington Sales & Leasing Executive, SA
+61 8 8233 5282
Garry.Partington@au.knightfrank.com
NATIONAL
Rob Salerno Partner,
Head of Industrial, Australia
+61 2 9761 1871
Rob.Salerno@au.knightfrank.com Greg Russell Partner,
Head of Industrial Investments, Australia
+61 7 3246 8804
Greg.Russell@au.knightfrank.com
VALUATIONS & ADVISORY
James Pledge Partner,
Head of Valuation & Advisory, SA
+61 8 8233 5212
James.Pledge@sa.knightfrankval.com.au Nick Bell Partner,
Valuation & Advisory, SA
+61 8 8233 5242
Nick.Bell@sa.knightfrankval.com.au Tom Walker Associate, Industrial, SA
+61 8 8233 5239
Tom.Walker@sa.knightfrankval.com.au
SOUTH AUSTRALIA
Guy Bennett Partner,
Head of Institutional Sales, VIC & SA
+61 8 8233 5204
Guy.Bennett@au.knightfrank.com Bobbette Scott Partner,
Head of South Australia
+61 8 8233 5211
Bobbette.Scott@au.knightfrank.com
Australian
Residential Review
Q2 2019
Eastern Seaboard
Industrial
Development July
2019
Adelaide Office
Market Overview
March 2019
Definitions:
Prime Grade: Asset with modern design, good condition & utility with an office component 10-30%.
Located in an established industrial precinct with good access.
Secondary Grade: Asset with an older design, in reasonable/poor condition, inferior to prime stock,
with an office component between 10-20%.
Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market
income is divided by the adopted value/price which has been adjusted to account for property
specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure,
current vacancies, incentives, etc).
WALE: Weighted Average Lease Expiry
Active Capital
2019