Perth Commercial & Industrial Property Market Review - March 2023
“Backed by strong economic fundamentals, the Perth Industrial market appears well placed to navigate these interim challenges and continue on its trajectory as one of Australia’s most sought after investment markets.”
Perth’s industrial market remains robust, despite signs of short-term economic uncertainty.
The Reserve Bank of Australia (RBA) attempts to curb high inflation through aggressive monetary policy cycles has resulted in a moderating of economic growth. WA’s Real Gross State Product (GSP) rose 3.1% in the year to Q422, down from 3.3% for the previous 12-month period, however above the 10-year annual average of 2.5%.
Accordingly, market participants appear to have adopted a more cautious outlook, with signs investors are reassessing their allocations of capital and occupiers holding off on aggressive expansion strategies. This current sentiment suggests the market has stabilised, following extremely buoyant market conditions across the last 18 months.
Throughout 2022, total transaction reached $887 million (assets greater than $5 million), significantly higher than the 10-year annual average of $572 million, although below the $1.9 billion recorded in 2021. The largest transaction to occur in 2022 was Charter Halls acquisition of half of Roe Highway Logistics Park for a sum in the order of $300 million.
The rental market remains strong, driven by tenant demand and tight supply. Rents for super prime industrial stock averaged $125/sqm, reflecting an annual increase of circa 30% to Q422 and prime rents averaging $115/sqm, revealing a circa 25% across the corresponding period. Secondary stock averaged $95/sqm, reflecting an annual increase of circa 20% to Q422. We anticipate rents will continue to grow in 2023 given near zero vacancy, albeit at a slower rate.
Modest yield expansion is being experienced across both prime and secondary stock, as investors face uncertainty and factor in higher interest rates and funding costs. Currently, the average prime yield range is between 5.00% - 6.00%, with all but core/eastern stock considered to fall towards the upper end of this range. Secondary yields are averaging 6.00% - 7.00%. Although some further expansion of cap rates is expected, strong demand and low vacancy is anticipated to maintain rental growth, preserving significant falls in capital values.
At time of writing, the ASX 30 Day Interbank Cash Rate Futures indicate the cash rate will peak at 4.2% in October 2023 (currently at 3.6%) and then decline. If this holds true, we could expect to see an uplift in investment activity, resulting in yield stabalisation and fueling growth in asset values.
Backed by strong economic fundamentals, the Perth Industrial market appears well placed to navigate these interim challenges and continue on its trajectory as one of Australia’s most sought after investment markets.