How to capitalise on the industrial property boom

There’s a perfect storm of soaring demand for industrial
property across Australia right now, and according to property experts, it’s
not showing any signs of slowing soon.

Spike in
warehouse & logistics space

Industrial space was already in high demand prior to the
COVID-19 pandemic. However, the accelerated growth of e-commerce and
restructuring of supply chains that ensued since its emergence has caused a
further sharp spike in requirements for warehouse and logistics space across
Australia.

Companies seeking to take advantage of the low-rate environment
and acquire their own industrial premises rather than renting, and government-driven
infrastructure developments are also driving tenant-demand across regional
locations.

Vacancy
rates at historic lows

As a result, the national industrial vacancy rate has fallen to a historic low of 2.24%, reaching just 1.4% in Sydney and 1.54% in Melbourne, according to a new CBRE report.

“In 20 years, I have not witnessed such vast volumes of
leasing enquiry,” says Cameron Grier, CBRE’s regional director of Industrial
& Logistics.

“This has not just been restricted to the major east coast
markets, with South Australia and Western Australia also experiencing record
demand.”

What
makes industrial property so appealing to investors?

Industrial property is a specialised segment of the
commercial real estate market. It is typically tenanted by large, established
companies with specific needs, such as proximity to major transport links,
large vehicle accessibility and significant roof and gantry heights.

These companies make excellent tenants as they are generally
willing to sign long lease agreements with fixed rental increases, giving
investors more stability than a typical residential lease.

They are also often signed on net leases, meaning tenants
bear costs, such as insurance and maintenance, that would normally be paid by
the owner.

Another strength of industrial property is that the day-to-day
operations for industrial property tenants were largely unaffected by COVID-19
lockdowns.

In fact, the manufacturing sub-sector has benefitted from
the resulting low Australian dollar, which aids Australian exporters as the
cost of our goods and services is lower relative to the US dollar.

We’re also currently seeing higher commodity prices, which
means the materials used for manufacturing activities (such as coal, iron ore,
copper, and other minerals) are maintaining or improving in price,
notwithstanding COVID-19.

These current low vacancy rates are also translating into strong capital appreciation, with industrial land prices in west Melbourne more than doubling over the past four years.

Robust investor
demand (and modest supply)

As a result, industrial property is offering competitive
yields to investors that are difficult to achieve from many other property
sectors and asset classes in the current economic environment.

This is driving significant investor demand for industrial
property, which should continue to rise, particularly as investors gear their
strategies toward a greater exposure in the industrial sector.

Strong foreign demand for Australian commercial property is also buoying an upward momentum in prices locally. In the first quarter of 2021, $2.4 billion flowed into the sector from abroad, and in April, a portfolio of 45 Australian industrial assets sold for almost $4 billion to Asian investors.

Demand
not changing soon

Property experts predict this soaring demand for industrial
property won’t decline soon.

CBRE forecasts that an additional 2,500,000 sqm of
industrial space will be required in Australia over the next five years to
support the growth of online shopping alone.

“E-commerce last year experienced five years of growth in just 12 months and now accounts for around 13% of all retail sales in Australia,’’ notes CBRE’s Industrial and Logistics Vacancy Report H1 2021.

“But Australia still has a long runway for growth in this
area to catch other Asia-Pacific countries that range between 20% and 40%. This,
coupled with the fundamental rethink of how occupiers deal with inventory
levels, has set up 2021 as a great year for owners of industrial and logistics
property.’’

How to
capitalise on the industrial property boom

The relatively high capital values of industrial assets make
it challenging for many investors to participate in industrial property
investment.

Professionally managed property trusts provide investors
with an opportunity to invest in this high-performing asset class without
committing substantial capital.

In property trusts, investors can buy ‘units’ in the trust,
which purchases a property or several property assets and manages the
associated administration, maintenance and rent collection on your behalf.

They are designed with the aim of paying investors regular
distribution payments throughout the life of the trust derived from rental
income from the trust’s investments. Property trusts also offer the opportunity
for potential capital growth at the end of the investment term when the
property is sold. Please note, distributions are not guaranteed, nor is the
return of initial capital invested. 

At Trilogy, our Trilogy Industrial Property Trust aims to provide
investors with stable and regular income and the opportunity for capital growth
over the long term from a portfolio of Australian industrial property assets.

You can learn more about the Trilogy Industrial Property Trust >

This article is sponsored content. The supplier of this content has a commercial arrangement with Switzer Financial Group.

This article is issued by Trilogy
Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) as responsible
entity for the Trilogy Industrial Property Trust (Trust) ARSN 623 096 944.
Application for investment can only be made on the application form
accompanying the Product Disclosure Statement (PDS) dated 1 July 2021 for the
Trilogy Industrial Property Trust ARSN 623 096 944 available at
www.trilogyfunds.com.au. The PDS contains full details of the terms and
conditions of investment and should be read in full, particularly the risk
section, prior to lodging any application or making a further investment. All
investments, including those with Trilogy, involve risk which can lead to loss
of part or all of your capital or diminished returns. Trilogy is licensed to
provide only general financial product advice about its products and therefore
recommends you seek personal advice on the suitability of this investment to
your objectives, financial situation and needs from a licensed financial
adviser. Investments with Trilogy are not bank deposits and are not government
guaranteed